Over the past three weeks investors pulled cash from US mortgage bond funds at
an unusually rapid pace, with outflows ranking among the seven largest since
early 2021; the US mortgage‑backed securities (MBS) index posted its
second‑worst monthly return on record in September. Treasury yields climbed to
multi‑decade highs after oil jumped, inflation worries rose and markets priced
in more Fed tightening, triggering MBS selling. MBS are highly sensitive to
sudden moves in Treasury yields because higher rates curb refinancing, extending
the time investors hold lower‑coupon securities and raising duration risk. Fed
tightening and a flatter yield curve could further weaken banks — a key MBS
buyer — reducing demand. Strategist Erica Adelberg says the offset is that
mortgage rates, now the highest since 2023, should suppress refinancing and
homebuying, likely slowing house‑price and loan growth and trimming MBS supply
toward year‑end.
