Some investors are using ETFs that track mortgage-backed securities to take advantage of the Federal Reserve’s latest round of bond buying designed to stimulate the U.S. economy.
Earlier this month, the Fed announced its third installment of quantitative easing, or QE3. The central bank said it will purchase more agency mortgage-backed securities at a rate of $40 billion a month to support the market for real estate loans. [Mortgage-Backed Securities ETFs and QE3]
Jeffery Timlin, a fixed-income portfolio manager at Sage Advisory Services, tells Dow Jones he had been building positions in iShares Barclays MBS Bond Fund (NYSEArca: MBB), which holds $6 billion in assets. [ETF Spotlight: Mortgage-Backed Securities]
MBB surged on the day the Fed announced QE3 and has been trending higher in September.
Yet in the report, Timlin said QE3 expectations were already baked into MBS prices while “at current levels market valuations appear fairly rich” in the related ETFs.
“If you’re looking to get into that side of the trade now, you’ve already missed a lot of the easy pickings in MBS markets,” he told Dow Jones.