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Agency Mortgage-Backed Securities: A Resilient Investment in a Volatile Market

In today’s turbulent financial landscape, agency mortgage-backed securities (MBS) are emerging as a compelling option for investors seeking stability and attractive yields.

These securities, which are debt obligations backed by pools of mortgages and guaranteed by U.S. government-sponsored entities like Fannie Mae, Freddie Mac, and Ginnie Mae, have historically demonstrated resilience during market downturns.

With recent market volatility driven by tariff threats and economic uncertainties, experts from Janus Henderson, BlackRock, and TCW highlight why agency MBS are a strong choice for investors in 2025.

Below, we explore the appeal of agency MBS, their performance, and their role in diversified portfolios, enriched with additional insights from recent market analyses.

Historical Resilience in Market Selloffs

Agency MBS have a proven track record of weathering market storms.

According to John Kerschner, head of U.S. securitized products at Janus Henderson, these securities have historically been a safe haven during market selloffs. For instance, during the Global Financial Crisis (2007–2009), the Bloomberg U.S. MBS Index delivered annual returns of +6.9%, +8.4%, and +5.9%, outperforming many other fixed-income assets.

This resilience stems from their government backing, which provides a AA+ credit rating, making them nearly as secure as U.S. Treasurys while offering higher yields.

In 2025, amidst renewed tariff threats targeting companies like Apple and the European Union, agency MBS have continued to perform well, with the Janus Henderson Mortgage-Backed Securities ETF (JMBS) achieving its best start to a year since 2020 as of April 30, 2025.

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Attractive Yield Premium Over Treasurys and Corporates

One of the most compelling reasons to consider agency MBS is their yield advantage.

Kerschner notes that agency MBS currently offer approximately 140 basis points more yield than U.S. Treasurys, providing a similar credit quality with significantly higher income potential.

Compared to investment-grade corporate bonds, agency MBS also stand out due to wider spreads.

While corporate bond spreads remain tight due to strong supply-demand dynamics, agency MBS spreads are elevated because of a challenging supply environment, making them relatively cheap.

For example, Bryan Whalen, chief investment officer at TCW, highlights that agency MBS spreads are currently about 65 basis points higher than those of corporate bonds, offering investors a chance to capture enhanced income while waiting for potential price appreciation.

Some Top Names to Consider

  • Janus Henderson Mortgage-Backed Securities ETF (JMBS): 30-day SEC yield of 5.11%, expense ratio of 0.22%.

  • iShares MBS ETF (MBB): 30-day SEC yield of 4.22%, expense ratio of 0.04%.

  • TCW Flexible Income ETF: 30-day SEC yield of 5.9%, expense ratio of 0.40%, with agency MBS comprising about 22.5% of the portfolio.

Capitalizing on Market Volatility

Market volatility, particularly driven by tariff policies and interest rate fluctuations, has created opportunities in agency MBS.

BlackRock’s Rick Rieder, chief investment officer for global fixed income, emphasizes that rate volatility can “cheapen up mortgages,” making them an attractive buy during selloffs.

For instance, during the April 2025 market turbulence following tariff announcements, Rieder added agency MBS to the iShares Flexible Income Active ETF (BINC), capitalizing on the price drop.

The liquidity and high quality of these securities make them a reliable choice for active managers looking to navigate volatile markets. Rieder notes, “The liquidity of mortgages is great, quality is good,” underscoring their appeal in uncertain times.

The supply dynamics of agency MBS are shifting in ways that could benefit investors. Kerschner explains that the Federal Reserve has been reducing its holdings of agency MBS, increasing market supply

But How Do These Differ from Dividend Stocks?

Similarities

  • Income Generation: Agency MBS offer monthly interest payments (e.g., JMBS at 5.11% yield, MBB at 4.22%), while dividend stocks provide regular payouts (e.g., VYM at 2.8%).

  • Portfolio Diversification: Both have low correlation with broader equities, with MBS offering stability and defensive dividend stocks reducing volatility.

  • Attractive in Low-Rate Environments: Both benefit from stabilizing or declining rates, projected for late 2025.

Differences

  • Risk Profile:

    • Agency MBS: AA+ rated, nearly as safe as Treasurys, with risks tied to interest rates and prepayments.

    • Dividend Stocks: Higher risk due to equity volatility; dividends can be cut (e.g., 42% of S&P 500 firms cut dividends in 2020).

  • Return Characteristics:

    • Agency MBS: Predictable 4–6% annualized returns via interest and potential price gains.

    • Dividend Stocks: Higher potential returns (~10% for Dividend Aristocrats, 1989–2024) but with greater volatility.

  • Liquidity:

    • Agency MBS: Highly liquid via ETFs like MBB (0.04% expense ratio).

    • Dividend Stocks: Liquid for large-caps, less so for smaller stocks.

  • Economic Sensitivity:

    • Agency MBS: Tied to rates and housing, less to corporate earnings.

    • Dividend Stocks: Sensitive to corporate performance and tariff impacts.

  • Tax Considerations:

    • Agency MBS: Interest taxed as ordinary income.

    • Dividend Stocks: Qualified dividends taxed at lower capital gains rates.

Agency MBS offer safety and liquidity amid tariff-driven volatility, ideal for risk-averse investors. Dividend stocks suit those seeking growth but require careful selection to avoid tariff-exposed firms. Combining both can balance stability and return potential.

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