Potential Sell-Off in Mortgage-Backed Securities—Risk and Opportunity

The Wall Street Journal (WSJ) reported that investors are anxiously awaiting the sale of Silicon Valley Bank’s (SVB) roughly $78 billion agency RMBS. Although the “market is deep enough to absorb even large liquidations,” increased supply in an already “weakened market” could push prices even lower for these bonds, particularly if other banks, faced with their own liquidity issues are forced to sell off their Agency RMBS holdings. The securities, which are issued by Fannie Mae and Freddie Mac, have declined in value as interest rates rose. However, lower prices may attract new buyers as the bonds are “far less likely to default than most debt and are easy to buy and sell quickly.”

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