Why agency mortgages could stay cheap for a while

Big bond managers are snapping up agency bonds, but disrupted valuations could last a surprisingly long time

cheap mortgage

For six months, the mortgage basis – the yield on current coupon agency bonds over the midway point between five-year and 10-year Treasuries – has hovered at near-historic highs as large buyers have stepped out of the market. One buy-sider describes the premium for holding assets that are as safe as it gets outside government bonds as “mind-boggling”.

Big bond managers including BlackRock, DoubleLine and Pimco are betting valuations will normalise, but some are less certain about how soon the

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