TCW Group and the Bank of New York Mellon's Standish unit reduced their holdings and are buying government-backed mortgage bonds, Bloomberg reported Thursday.
Following the Federal Reserve September announcement that it would buy $40 billion each month in securities, the debt rallied initially. The rally did pay off; however, investors believe sustained weakness is unlikely as the Feds look to improve the economy through its stimulus measures.
“The Fed’s activities will win the day in the end,” Bryan Whalen, co-head of mortgage bonds at Los Angeles-based TCW told Bloomberg.
While the gap between yields on Treasurys and the type of mortgage bonds the central bank is buying reached a record low in September, TCW stopped believing that the spread would narrow.
TCW changed its stance to a “slight overweight.”