Wall Street Touts a ‘Buy MBS, Sell Credit’ Trade on Fed Bets
- Money managers wait to buy at discount when Fed sheds MBS
- Sell corporates, buy mortgages as duration, credit risk play
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Anticipation of the Federal Reserve’s balance-sheet reduction is weighing on bonds backed by mortgages, but the actual event may make them an attractive alternative to corporate debt.
At its May 3-4 meeting, the central bank is forecast to provide a road map for shedding securities it purchased to provide liquidity during the pandemic. A maximum monthly pace of $95 billion is expected, with $35 billion coming from mortgages, after the Fed about doubled its MBS portfolio to around $2.7 trillion the past two years.