March 2023: A tough month so far
US Treasury yields have fallen, while credit spreads and global market volatility have risen, amid the recent challenges faced by a growing number of banks in both the US and Europe. As a result, March has been a tough month for many market sectors as of this writing, and the securitized asset space has been no exception.
Agency MBS have been the laggards
Agency mortgage-backed securities (MBS) have been directly impacted by the crisis, making them one of this month’s worst risk-adjusted performers within the securitized space. Many smaller, regional banks have significant exposure to agency MBS and began to sell such securities as they experienced swift deposit outflows, which they feared would only accelerate.
The Bank Term Funding Program (BTFP) announced by the US Federal Reserve (Fed), which offers loans pledged to agency MBS or Treasuries at face value, has helped ease some of the concerns around MBS sales, allowing their spreads to partially retrace some of the recent widening. However, the uncertainty around this subsector remains elevated, even after preliminary government steps to stabilize affected institutions in both the US and Europe.