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Summary
- The Fund returned 2.56% and the Bloomberg U.S. Mortgage Backed Securities (MBS) Index returned 2.43%.
- In September, the Federal Reserve (Fed) cut interest rates for the first time since December 2024 in response to signs of a slowdown in labor demand.
- Tightening spreads, falling Treasury yields, normalizing interest rate volatility, and further steepening of the yield curve may continue to drive positive excess returns…
Summary
- The Fund returned 2.56% and the Bloomberg U.S. Mortgage Backed Securities (MBS) Index returned 2.43%.
- In September, the Federal Reserve (Fed) cut interest rates for the first time since December 2024 in response to signs of a slowdown in labor demand.
- Tightening spreads, falling Treasury yields, normalizing interest rate volatility, and further steepening of the yield curve may continue to drive positive excess returns for MBS.
- While we believe the MBS asset class is broadly poised for strong performance, there is significant dispersion among various pools of MBS.
- Amid a backdrop of elevated macro uncertainty, nimble asset allocation and careful security selection can be reliable levers to generate performance.
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At a glance
Performance
The Fund returned 2.56% and the Bloomberg U.S. Mortgage Backed Securities (MBS) Index returned 2.43%.
Contributors/detractors
Asset allocation and security selection within agency and non-agency mortgage-backed securities (MBS) contributed.
Outlook
Tightening
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Quick Insights
JMBS outperformed due to effective asset allocation and security selection within agency and non-agency MBS, capitalizing on tightening spreads and falling Treasury yields.
JMBS is mitigating prepayment risk by focusing on specified mortgage pools rather than recently issued TBA securities with 6%-8% coupons, aiming for attractive yields with lower risk.
Ongoing Fed rate cuts, further steepening of the yield curve, and declining interest-rate volatility are expected to support strong agency MBS returns going forward.