Ashok Bhatia, Global Head of Fixed Income at Neuberger, highlights how US policy support is creating new opportunities in high-quality fixed income. He points to the $200bn agency mortgage-backed securities purchase programme as a key driver of tighter spreads and improved technicals, supporting the case for agency MBS as a source of resilient income.
Episodes like last week’s geopolitical flare‑up over Greenland crank up the global macro noise and volatility that have been with us for some time, making it easy to be distracted by headlines. Yet as similar bouts of short‑term market turbulence emerge through the year, the real challenge is to stay anchored in fundamentals, focused on long‑term outcomes and attentive to smaller policy developments at home that can move markets in more durable – and investable – ways.
In US fixed income, this is playing out in certain asset classes – most notably agency mortgage‑backed securities (MBS), where the opportunity, is worth focusing on.
Several forces are at work: the Federal Reserve’s easing bias, still‑elevated (if tighter) spreads and improving technicals. The most powerful, however, is the administration’s recently announced $200bn MBS purchase program to be executed by Fannie Mae and Freddie Mac, the government‑sponsored enterprises (GSEs) at the centre of the US mortgage market.
Announced on January 8, the program is essentially designed to help support US households and stimulate the housing market by creating greater demand for agency MBS, thereby compressing mortgage spreads and pushing mortgage rates lower.
In isolation, this may look like a sizable initiative, but against the backdrop of the much bigger macro shifts under way in the US and globally, it could easily be overlooked – precisely why we think it deserves closer attention.
Why we see an opportunity now
The reason is simple: A large, policy‑driven buyer is returning to a market where many investors continue to seek high‑quality fixed income.
Even before the formal announcement, markets had begun to anticipate that the GSEs would become more active buyers. In the fourth quarter of 2025, agency MBS spreads started to tighten as investors increasingly priced in additional Fannie and Freddie demand. The January announcement has now turned that expectation into an explicit commitment.
For the past couple of years, agency MBS have mainly been bought by spread‑sensitive managers rotating in because mortgages looked cheap versus corporate bonds and other credit. Now, with the administration signalling that Fannie Mae and Freddie Mac will use their balance sheets more aggressively, the marginal buyer is shifting from opportunistic private capital to steady public‑sector demand. When that buyer’s primary mandate is to own these bonds rather than to trade relative value, spreads tend not just to tighten, but to remain contained, if not grind tighter.
Scale also matters. The $200bn headline broadly matches the remaining capacity the GSEs have under current regulatory caps. If more were deemed necessary, raising those caps is at least a plausible next step. That possibility is one reason the market views more consistent support as the risk rather than less consistent support.
All this is happening while spreads, though off their wides, still sit above longer‑term averages and interest‑rate volatility has declined as the Fed’s path has become clearer. In our view, that mix of supportive policy, still‑attractive risk premia and a calmer rates backdrop creates a sensible entry point to add high‑quality fixed income before the value becomes more widely recognized.
Balancing quality and income
This program is not expected to transform US housing or send mortgage rates sharply lower on its own. Treasury yields will remain the main driver of what borrowers pay.
Instead, we expect something more measured and investable: spreads moving from ‘cheap’ toward ‘fair’, and possibly a little richer, as the program is implemented and potentially extended. That gradual tightening can be uncomfortable for investors waiting for a pullback, but it can be rewarding for those prepared to own the sector and let carry work over time.
Importantly, agency MBS also continue to offer a compelling balance of quality and income. In a world where credit risk has been quiet but is starting to build, they remain a high‑quality, government‑backed option for investors who want fixed income without corporate credit exposure. The risk premium is not as generous as it was at the wides, but we believe it remains attractive given the underlying support.
One word of caution, low interest‑rate volatility has been a tailwind for the sector. If volatility were to rise again – whether because of the Fed, the long end of the Treasury market or external shocks – that would matter for mortgages. Being clear about where we are in the rate‑volatility cycle is therefore a key part of our risk assessment.
Leaning into the backstop
With credit risk likely to become more of a focus over time, investors should pay attention when a high‑quality, government‑backed asset class gains a fresh source of official support. Agency MBS are no longer outright cheap, and the Fed’s rate‑cutting cycle is more advanced, but that is exactly why this phase is about locking in resilient income where fundamentals, policy and market technicals are aligned.
US agency MBS now sits firmly in that category. Our approach is to be prudent but active: selective on structure and coupon, alert to prepayment and interest‑rate volatility risks, yet willing to build exposure into a market where public‑sector demand is likely to do much of the heavy lifting.
