Amid the volatility, these high-quality assets have attractive valuations — and solid yields

CNBC

24-05-2025

One place investors can turn to in this volatile market is agency mortgage-backed securities, according to Janus Henderson. The assets —debt obligations created out of a pool of mortgages and backed by the federal government — have historically been resilient in market selloffs, explained John Kerschner, head of U.S. securitized products and a portfolio manager at Janus. Stocks retreated on Friday after President Donald Trump resumed his threat of higher tariffs , this time leveled against Apple and the European Union . Treasury yields, which move inversely to prices, pulled back from their recent highs. Agency MBS are also relatively cheap compared to investment-grade corporate bonds, Kerschner pointed out. Spreads in corporates are still tight thanks to strong supply-demand dynamics, while agency MBS spreads are wider due to a challenging supply backdrop, he said. Premium over Treasurys "If people are concerned about the volatility in the markets, they're concerned about what's going to happen with tariffs and maybe this big tax bill that's coming, it's a place where you can get basically about 140 basis points more yield than Treasurys, with basically the same kind of credit that you're going to get in U.S. Treasurys," Kerschner said. Despite the turbulence that came with Trump's initial tariff announcements in April, agency MBS as of April 30 had their best start to a year since 2020, he pointed out. The Janus Henderson Mortgaged-Backed Securities ETF currently has a 5.11% 30-day SEC yield and 0.22% expense ratio. JMBS YTD mountain Janus Henderson Mortgaged-Backed Securities ETF in 2025 BlackRock's Rick Rieder also likes mortgage-backed debt and saw an opportunity to add the securities to the fund he manages, iShares Flexible Income Active ETF , when prices dropped during the April selloff. Cheapened by volatility "When rate volatility picks up, it can cheapen up mortgages," said Rieder, Blackrock's chief investment officer for global fixed income. "The liquidity of mortgages is great," he added. "Quality is good." BlackRock also has an ETF dedicated to investment-grade MBS, the iShares MBS ETF . The fund has a 30-day SEC yield of 4.22% and a 0.04% net expense ratio. MBB YTD mountain iShares MBS ETF in 2025 While supply may have recently weighed on the sector, Kerschner believes that should eventually even out. The Federal Reserve has been rolling agency MBS off its balance sheet, adding to supply, but banks have been pulling back from the market because they don't like the interest-rate volatility, he explained. Reduced supply coming As a result, the Street is starting to take down its projections for mortgage supply this year, he said. Plus, interest rate volatility should come down since it appears like the Federal Reserve may hold off on rate cuts for the foreseeable future, Kerschner added. "Lower volatility, less concern about banks, or maybe even positive that banks are going to come in and buy more and then less supply [is] setting up for better technicals," he said. Agency mortgages are also a big focus for Bryan Whalen, chief investment officer and generalist portfolio manager at TCW. The assets make up about 22.5% of one of the funds he manages, TCW Flexible Income ETF . The ETF has a 30-day SEC yield of 5.9% and a 0.40% total expense ratio. He sees an opportunity to get paid to wait while the assets, whose quality is the highest after Treasurys, appreciate in price. Typically, agency MBS trade at a spread over Treasurys that is less than corporate bonds. These days, they are about 65 basis points above corporates, he noted. "In an environment where yields are still bouncing around — and you're not going to expect that to tighten in — but you are getting paid a decent income while you wait for an eventual remediation in the price and or in the spread," Whalen said. That means investors should have a long-term view that interest rates will at some point come down and volatility will subside, he explained. "We'll get through the 'The Waiting Place' and we'll get to a steady-state yield curve that should also bring in, maybe, buyers that have … have certainly pulled back from the market in the last few years."