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11 Dec 17 How Will the Federal Reserve Impact Mortgage Securities in the Future

MBS are a large part of the U.S. bond market, representing about 30% of the Bloomberg Barclays US Aggregate Bond Index (source: Bloomberg, as of 11/30/2017). Chances are if you hold a core bond mutual fund or exchange traded fund (ETF), you have MBS in your portfolios. So should you just sell your MBS since the Fed will be buying less? Not so fast. First, consider the following factors. It’s true that mortgage rates could increase as the Fed continues to reduce their purchases and there is no longer a buyer of the last resort in the market. But mortgage rates have already risen since the U.S. election and the market has since priced in the Fed’s forward guidance on the normalization, as the chart below shows. Read the complete Nasdaq article.


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