Mortgage-backed securities (MBS) are becoming an increasingly risky proposition for investors, a trend that could potentially spread volatility across the broader fixed-income market, according to bond-market veteran Harley Bassman.
Bassman, best known as the creator of the MOVE Index—a key gauge of volatility in the mortgage-backed securities market—raised these concerns during an interview with the MacroVoices podcast, published Thursday.
He identified a flattening Treasury yield curve as a primary driver behind the rising risks associated with mortgage bonds. According to Bassman, this shift in the yield curve is making MBS less attractive and more volatile.
While Bassman remains cautious about mortgage securities, he noted that bonds issued by hyperscalers—large-scale technology companies—are currently in decent shape, offering a contrast to the deteriorating conditions in the housing finance sector.
The warnings come as investors navigate a complex economic landscape, with the U.S. 10-year Treasury yield hovering around 4.982% and the 2-year yield at 4.735%, reflecting the tightness in the yield curve that Bassman flagged.
Hyperscaler bonds still solid? Interesting contrast. I guess I’ll stick to tech debt while I wait for the MBS market to stabilize before diving back in.
I’ve been watching the 2-year and 10-year spread closely. This flattening curve is exactly what I feared would squeeze MBS margins again this year.