Limited Supply to Support Agency MBS Market in 2024
1. Agency mortgage-backed securities (MBS) spreads sit over 100 basis points (bps) wider than their 2021 lows. While spreads have been at historically wide levels for the last two years, an improving technical landscape in 2024 will likely pave the way for tighter spreads.
2. The average mortgage rate of existing homeowners with a mortgage sits at just 3.74% as of December 1, making it uneconomical for existing mortgage holders to move or refinance, dampening supply in the agency MBS market in 2024.
3. We expect the focus to shift in the agency MBS market from extension protection to call protection in 2024. With the specter of recession and credit defaults on the horizon, money manager demand for agency MBS is set to pick up in 2024.
For forward thinking investors.
At Eaton Vance, we look to the future to help you stay ahead of the markets today. We are a global asset management firm that believes in extensive research with a focus on intelligent downside risk management and we offer a network of specialised investment teams engaged across asset classes.
These teams include Calvert Research and Management (Calvert), Parametric Portfolio Associates LLC (Parametric), and Atlanta Capital Management LLC (Atlanta Capital). Each team offers their own specialised expertise and a unique perspective.
Parametric has been widely recognised for its focus investment discipline and has long provided systematic solutions fueled by investment science. The team has had a presence in Australia since 2011, custom-fitting equity portfolios to help Super Funds achieve their Investment Vision. With a focus on implementation and tax efficiency, Parametric employs a collaborative, research-driven approach. The team’s offerings include Tax-Managed Centralised Portfolio Management, Tax-Managed Indexing and Factor Investing solutions, as well as Emerging Markets and Defensive Equities solutions.
Across our teams we serve professional investors with innovative strategies and services. We have a long track record of helping professional investors prepare for market-cycle complexities with a strategic, proactive approach. This progressive mindset helps professional investors position themselves for success in today’s fast-changing world.
Limited Supply to Support Agency MBS Market in 2024
High Quality Stocks Offer Opportunity Amid a Sea of Market Noise and Volatility
1. Major equity indexes are at record levels of concentration, skewing index returns. This scenario provides an opportunity for active managers whose portfolios are differentiated from the benchmark to add value over the long term.
2. Inflation, interest rates, the Fed's balance sheet, credit issues and corporate earnings add to the sea of noise and volatility in the marketplace. Moreover, macro uncertainty is heightened by geopolitical wars.
3. We believe high quality1 companies with proven pricing power, leadership in secularly growing markets, and disciplined expense management are well positioned to navigate these volatile environments.
Higher Volatility in 2024 May Present Attractive Entry Points for High Yield Bonds
1. As global central banks near the end of a historical cycle of tightening monetary policy, we believe a moderate recession is a more probable outcome in 2024.
2. Increasing dispersion in valuations across rating segments, sectors and individual issuers will continue to provide opportunity and the ability to capture attractive entry points.
3. We have maintained our cautious positioning and continue to prefer defensive sectors that trade wide of historical norms, such as health care, given the sector's historically defensive characteristics.
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