Finding new value Finding new value\images\insights\video\business-people-shaking-hands-small.jpg September 27 2023 September 27 2023

Finding new value

Mortgage-backed securities may become more attractive relative to credit.

Published September 27 2023
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Video Transcript
Question: How does the MBS market and valuations compare to credit sectors?
Todd Abraham: Well, we find ourselves in a really unique position in the mortgage-backed securities market. Historically speaking, the spread sectors, and that would be credit and mortgage-backed securities, commercial securities, they tend to exhibit a fair degree of correlation in that they go generally in the same direction. As we stand today, given the dynamics in mortgages where there's been a decline in demand relative to the supply, we find valuations are very, very attractive historically speaking. In the corporate sector, we find ourselves in an environment where the 10-year average for spreads is around average for the historical period and mortgages were at a very wide end of the range. So mortgages relative to credit is quite attractive. So, that makes sense for crossover buyers. Someone who might historically purchase more of corporate credit are finding mortgage-backed securities very attractive. The sector committee shares this view and you can see how the portfolio is positioned where Federated is overweighted to mortgage-backed securities and we're underweighted to the credit sectors reflecting the dynamics of the sector.
Tags Fixed Income . Markets/Economy .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

The value of some mortgage-backed securities (MBS) may be particularly sensitive to changes in prevailing interest rates, and although the securities are generally supported by some form of government or private insurance, there is no assurance that private guarantors or insurers will meet their obligations.

Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.

Federated Investment Management Company