MBB iShares MBS ETF : Bullish and Bearish Analyst Opinions

The speaker states, "going out the risk spectrum a little to agency mortgage and commercial mortgage backs is a is a great place to kind of hide out" and calls commercial mortgage backs "our kind of favorite credit space." Agency mortgages offer mid-5% yields with no credit risk, and commercial mortgage-backed securities offer high single-digit yields. The recent backup in spreads and Treasury yields has made these sectors attractive. These fixed-income sectors provide an attractive combination of yield and relative safety (agency) or compelling yield for credit risk (CMBS) in an uncertain macro environment where the Fed is on hold. A severe economic downturn leads to worse-than-expected defaults in commercial real estate, impacting CMBS. A sharp, unanticipated rise in Treasury yields could pressure prices.

The speaker expects the Fed to reverse its unwind of Mortgage-Backed Securities (MBS) and begin purchasing them again due to political pressure to address housing affordability.

"Capitalize on some of those moves. For example, buying back into some mortgage exposure so close out some of those bets that haven't worked for you but remain diversified." With interest rates expected to remain range-bound and the Federal Reserve delaying cuts due to sticky inflation, agency mortgage-backed securities offer attractive yields and vital portfolio diversification compared to stretched equity valuations. LONG. MBS provides a safe haven with steady income generation during periods of heightened geopolitical and equity market volatility. If inflation re-accelerates significantly, forcing the Fed to actually hike rates rather than just delay cuts, bond prices across the board will suffer.