BofAML Sees 2019 as ‘Anything But Smooth Sailing’ for Mortgages
- Money managers will be the ‘key‘ to sector performance
- Big ‘ifs’ are trade wars, bank regs and private sector demand
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Investors in agency mortgage-backed securities will find next year to be "anything but smooth sailing" as Fed rate hikes and balance sheet reduction will lead to an increase in real rates and volatility while pushing spreads wider, Bank of America Inc. MBS strategist team led by Satish Mansukhani write in a 2019 outlook report.
The key to 2019 sector performance will be the enthusiasm of relative value investors such as money managers to absorb the $375 billion demand gap created in part by the central bank’s exit. Compared to the pre-crisis era, money manager MBS holdings have declined $500 billion amid a $2.2 trillion growth in their assets under management. That suggests they are currently underweight mortgages.