Income, diversification and resilience through mortgage-backed securities

Non-agency residential mortgage-backed securities can provide income, differentiated credit exposure and resilience within fixed-income portfolios.

• Spreads on non-agency RMBS remained broadly stable in 2026 despite higher government bond yields and elevated interest-rate volatility, with legacy securities backed by seasoned mortgages offering established repayment histories.
• RMBS are backed by diversified pools of residential mortgages and property collateral, while US MBS have shown historically low correlations with traditional fixed-income sectors.
• Fixed-rate borrowing supports household resilience: 84.7% of US mortgages had fixed-rate terms longer than 15 years at the end of 2025, and 49% of outstanding mortgages carried rates below 4% in Q2 2026.
• Seasoned borrowers have built substantial home equity through house-price appreciation and mortgage amortisation, while subordination and other credit enhancements can protect senior securities from losses.
• The US MBS market exceeds USD 9 trillion, representing approximately 22% of US fixed income; mortgage debt was about 67% of GDP in Q1 2026 versus 97% in 2006, and agency MBS returned 14.2% between October 2007 and March 2009 compared with a 23.6% decline for US high-yield bonds.

Takeaway: Non-agency RMBS may complement government and corporate bonds through income, collateral support and differentiated risk drivers, provided investors apply detailed collateral analysis, disciplined security selection and active interest-rate management; historical correlations and resilience may change.