Reduced purchases of mortgage-backed securities could plague ETFs such as the iShares MBS ETF (NYSEArca: MBB). MBB provides exposure to U.S. agency mortgage-backed bonds, including Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA) and Freddie Mac (FHLMC) securities, according to iShares.
Going forward, the tapering-fueled issue that could weigh on an ETF like MBB is the recent surge in mortgage rates. Higher mortgage rates are comparable to higher bond yields. The result is lower income due to lower coupons. “The trailing six-months of income from the MBS pools was $15.988 billion for the first half of 2013, versus $16.581 billion for the first half of 2012,” according to 24/7 Wall Street.
Accordingly, MBB is down 3.5% year-to-date and 2% in the past 90 days.
iShares MBS ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of REM.