Mortgage‑Backed Securities Strategy

Why Invest in Mortgage-Backed Securities (MBS)?

Mortgage-backed securities are one of the largest sectors of the global fixed income market, offering investors a variety of potential benefits, including:

  • A broad and diverse opportunity set
  • MBS are backed by U.S. homes and the majority are collateralized by conforming loans and issued by the mortgage Agencies.  The mortgage Agencies, Fannie Mae, Freddie Mac, and Ginnie Mae, are mandated by Congress to assist in the provision of financing in the U.S. housing and mortgage markets.
  • Attractive yield premium to Treasuries and swaps with over 30 years of price history

In addition to these primary benefits, MBS offer other potential benefits as well. MBS are among the most liquid fixed income securities in the world, and are attractive risk-based capital assets under Basel 1 and 2.1

MBS also have been among the world’s most attractive opportunities for alpha in broader fixed income portfolios due to the fact that trading is usually dominated by accounting and regulatory-constrained investors. These constraints can create attractive opportunities for total return investors. Because of the many potential benefits MBS may offer, financial institutions continue to make substantial allocations to MBS.


1 Basel 1 and 2 are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. Their purpose is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face.

Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk. Mortgage and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee there is no assurance that private guarantors will meet their obligations. PIMCO strategies utilize derivatives which may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. The credit quality of a particular security or group of securities does not ensure the stability or safety of the overall portfolio. There is no guarantee that these investment strategies will work under all market conditions and each investor should evaluate their ability to invest for a long-term especially during periods of downturn in the market. Diversification does not ensure against loss.

This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.