Surprise: April MBS Returns Best in Over 10 Years

On the heels of earlier data suggesting at least some encouraging trends for investors, it turns out that April was a very good month for some investors in the MBS marketplace — and the first strong sign of life in a secondary mortgage market that has been all but locked up since the middle of last year.

The proof? Merrill Lynch said that excess returns for MBS over Treasuries were the highest they’ve been since at least 1997, Reuters reported Friday morning:

Merrill Lynch said the excess return of the MBS index in April was 1.546 percent, the highest one-month result since the company started calculating excess returns in January 1997, Carrie Gray, spokeswoman for the company, said in an e-mail.

The stellar performance was largely due to robust buying from an array of investors, particularly government-sponsored enterprises Fannie Mae and Freddie Mac. Overseas demand from Asia, in particular, also played a pivotal [role], analysts say.

Part of the reason for outsized returns, sources told HW, has as much to do with Treasuries as it does with some resumption of buying activity in the MBS market. Merrill Lynch’s bond indexes show, for example, that Treasuries lost 1.7 percent in April — the first monthly loss since June of last year.