U.S. MBS
Improving housing fundamentals are helping MBS, but if interest rates fall to Japanese or EU levels, prepayment risk will rise sharply.
Delinquency down: With positive economic growth and high levels of employment, delinquency rates have dropped substantially from crisis levels.
Housing prices up: After falling 20% in the Great Recession, housing prices nationally are at an all-time high.
Low rates: With mortgage rates within 15 basis points of their recent low, prepayment risk has increased. In 2015, 46% of mortgage activity was for refinancing.
Similar returns: Returns for both long-term U.S. RMBS and the Barclays U.S. Aggregate index have averaged about 5.15% over the past 10 years, with significant yearly fluctuations.
Sources: Bloomberg LP; Federal Housing Finance Agency; Freddie Mac; Mortgage Bankers Association; Bank of America Merrill Lynch
Compiled and designed by Aaron M. Cunningham and Gregg A. Runburg
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