BAML: Agency MBS results mixed but Fannie, Freddie solid

Better performance for credit products all around in May

Total returns were mixed across securitized products in May, according to a client note from Bank of America/Merrill Lynch, with securitized credit products providing higher total returns.

Most of the securitized credit products returned 0.1-0.8%, BAML says, whereas agency MBS had on average-0.2%-0% total returns.

In the agency space, Fannie Mae and Freddie Mac performed relatively well compared with Ginnie Mae.

“We maintain a neutral view for the securitized products and consider the performance risk as being to the downside. In the agency MBS space, the spread widening in May reflected elevated volatility and we expect the volume to remain high in the near term,” BAML says. “We expect the heavy corporate issuance volumes to continue in June, and we view this heavy supply calendar as a meaningful risk for securitized products in the near term.”

BAML says that in the non-agency space, Prime Fixed continued to be the best performer with 0.6% total returns, followed by Option ARM (0.6%). In the risk transfer space, low LTV BB tranches had the highest total return of 0.8% while low LTV non-rated tranches had the lowest total return of -0.2%.

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