Are Agency Mortgage-Backed Securities Making a Comeback?

Jay Bacow and James Egan, co-heads of Securitized Products Research at Morgan Stanley, discuss the investment value of mortgages following the Jackson Hole symposium. They argue that reduced uncertainty from the Fed's indicated rate-cutting strategy, coupled with mortgages' relatively low valuation compared to other asset classes like corporate credit, makes them an attractive investment. While acknowledging risks such as prepayment risk and the potential for broader market underperformance, they highlight improving technical factors and the potential for increased demand from banks as supportive factors for mortgage valuations. The discussion emphasizes the relative value proposition of mortgages in the current market environment.