MBB has an effective duration of 2.8 years, according to manager BlackRock (NYSE: BLK).
Of course, Treasury yields have been trending lower the past two months but some investors continue to position for higher interest rates with shorter-duration bond ETFs and floating-rate funds, for example.
“Government-sponsored mortgage bonds typically sport higher yields than comparable U.S. Treasury bonds,” Strauts explains in a profile of MBB. “However, because homeowners can refinance or sell their homes at any time, mortgage-bond cash flows are very unpredictable. This ‘prepayment risk’ is why these bonds pay higher interest rates.”
Other ETFs in the category include SPDR Barclays Capital Mortgage Backed Bond (NYSEArcA: MBG) and Vanguard Mortgage-Backed Securities Index ETF (NYSEArca: VMBS).