Ginnie Maes: Time to Give 'Em a Rest

With the Federal Reserve cutting rates to save the economy, these mortgage-backed investments are losing their luster

Q: I invested in a Ginnie Mae fund a year ago and did very well. What can I expect from the fund in a falling interest rate environment? How will the interest payout be affected? - B.G., Massachussetts


You're right in thinking that the Federal Reserve's recent rate-cutting binge could pack an especially hard wallop when it comes to your Ginnie Mae fund. While changes in interest rates affect all fixed-income investments, mortgage-backed securities (MBS) like Ginnie Mae pass-through certificates, are more sensitive than most. When interest rates are stable or rising, Ginnie Maes usually offer a higher yield than Treasuries of the same maturity, but when rates drop, Ginnie Maes will generally do worse than Treasuries.

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