T. Rowe Price Leads Bargain Hunt in MBS
1h ago|7 min read1Standard
Fazen Markets Research
AI-Enhanced Analysis
MBST. Rowe Pricemortgage bonds
T. Rowe Price and other institutional managers have moved to accumulate mortgage-backed securities (MBS) that dropped sharply in recent weeks after geopolitical shock and Treasury volatility, according to Bloomberg on April 2, 2026. The buying follows a period in which agency MBS spreads versus Treasuries widened materially — Bloomberg reported a roughly 30–70 basis-point increase in the prior month — creating what some asset managers call a valuations dislocation. Concurrently, the 10-year Treasury yield moved higher by about 60 basis points from late February into early April 2026 (Bloomberg, Apr 2, 2026), pressuring duration-sensitive sectors and repricing credit-sensitive securitised products. For active fixed-income managers, the move has created an entry point into a segment that historically has recovered as rate volatility normalises; however, risks tied to rates, prepayment assumptions and broader liquidity remain salient.
Mortgage-backed securities are a core allocation for many large fixed-income managers due to their spread pickup over Treasuries and diversification benefits, particularly in buy-and-hold portfolios. The recent uptick in volatility — driven by the war in Iran and rapid swings in global bond yields — hit MBS valuations because these securities combine interest-rate risk with mortgage-specific convexity and prepayment uncertainty. Bloomberg's April 2, 2026 report highlights that MBS underperformance crystallised over roughly a one-month window, prompting name-brand managers such as T. Rowe Price and Loomis to increase purchases where yields have become more attractive relative to Treasuries (Bloomberg, Apr 2, 2026).
Historically, comparable dislocations have presented windows for active managers: during 2013 'taper tantrum' episodes and the March 2020 COVID dislocation, agency MBS spreads widened sharply before compressing again as volatility subsided and Fed support resumed. The difference in the current episode is the combination of geopolitical-driven flight-to-quality and a more persistent inflation and rate-normalisation narrative. That context matters because MBS total returns are driven both by carry and by changes in expected prepayments; when yields rise quickly, prepayment rates typically slow, extending durations and altering convexity dynamics in portfolios.
For institutional investors the practical implication is twofold: valuation opportunities are present where spreads have widened, but exposure management must account for potential further rates shock. Managers buying into the move emphasise selection — focusing on lower-coupon, high-quality agency pools or arbitrage strategies that hedge duration into benchmark Treasuries. For those monitoring the market, internal resources such as topic provide ongoing analysis of relative-value opportunities and historical precedents.
Bloomberg's April 2, 2026 coverage provides several quantifiable markers of the dislocation. First, agency MBS spreads versus comparable-duration Treasuries widened by an estimated 30–70 basis points across different coupon buckets in March 2026 (Bloomberg, Apr 2, 2026). Second, the 10-year Treasury yield increased approximately 60 basis points between late February and April 2, 2026, amplifying mark-to-market losses for duration-exposed instruments (Bloomberg, Apr 2, 2026). Third, mortgage-market rates also moved: national 30-year fixed mortgage rates climbed to an estimated mid-high 6% range in the same period, reducing refinancing activity and feeding into slower prepayment expectations.
These raw moves feed through to ETF and manager-level performance. For example, broad MBS ETF flows and price performance typically lagged core Treasury funds: Bloomberg flagged that MBS-focused exposures materially underperformed Treasuries in March 2026, creating near-term negative total-return figures for passive MBS instruments versus core bond benchmarks. Comparatively, year-to-date through April 2, 2026, agency MBS indices have shown larger negative returns than the Bloomberg U.S. Aggregate (AGG), reflecting both spread-widening and duration effects. Such relative performance is important because it drives manager behavior — active teams with capacity and balance-sheet flexibility often increase purchases when spreads overshoot historical norms.
A further datapoint is liquidity: dealer inventories of agency MBS had tightened in Q1 2026, which exacerbated price moves during volatile sessions, according to market reports. This had the dual effect of deepening intraday moves and increasing execution costs for large block trades, making the timing and method of entry critical for institutional buyers. Fazen Capital tracks execution-cost metrics and periodic dealer inventory snapshots on our topic hub to help contextualise transaction risk in such episodes.
The immediate beneficiaries of the dislocation are active managers with explicit MBS mandates and balance-sheet capacity to absorb block trades without destabilising markets. T. Rowe Price and Loomis — named in Bloomberg's April 2 coverage — typify this cohort: large, diversified fixed-income desks with established securitised-product teams. Their purchases can serve to stabilise spreads mechanically, but the scale of MBS markets relative to the entire Treasury complex means a handful of managers will not fully restore prior valuations alone.
Mortgage REITs and MBS ETFs are natural comparators and potential sources of market signalling. In episodes where spreads widen 30–70 basis points, mortgage REIT earnings forecasts and dividend coverage can be materially affected due to leverage and net-interest-margin compression. Passive ETF holders face mark-to-market volatility distinct from underlying collateral health; active manager inflows into those same securities can create tactical divergence between ETF price action and underlying Ginnie, Fannie Mae and Freddie Mac collateral performance.
From a broader fixed-income allocation perspective, the episode underscores the tradeoff between yield and liquidity: manager willingness to buy MBS at wider spreads reflects a shift toward capture of carry that compensates for liquidity and basis risk. Pension funds, insurance companies and large endowments monitoring yield pick-up versus benchmark Treasuries will weigh the incremental pickup (measured in basis points) against operational risks such as hedging costs and scenario stress testing. Comparative metrics, such as MBS spread-to-Treasury differentials versus the 5-year historical median, provide a quantitative framework many allocators are using to assess whether current pricing offers sufficient margin of safety.
Risks in buying MBS at these levels are concentrated in three buckets: interest-rate risk, prepayment and extension risk, and liquidity/execution risk. If rates move higher again, MBS durations extend and mark-to-market losses can deepen, particularly on lower-coupon pools. Conversely, an abrupt decline in yields could accelerate prepayments and compress return potential for newly purchased high-coupon pools, creating reinvestment and basis risk for managers that purchased into the widening.
Counterparty and dealer liquidity risk is non-trivial in stressed episodes. With dealer inventories reported to be thin in Q1 2026, executing large purchases without moving the market demands coordination and potentially higher transaction costs. Institutional buyers must also model asymmetric outcomes — for example, a geopolitical de-escalation that drives rapid Treasury rallies could lead to outsized negative returns for recent MBS buyers who chose longer-duration exposure.
Credit risk remains low for agency MBS collateral backed by Ginnie/Fannie/Freddie, but non-agency pools or credit-sensitive securitisations would present materially different risk profiles. Operationally, managers must consider servicing-transfer risk and legal considerations in agency pass-throughs, while liquidity buffers and hedges (e.g., short Treasuries or interest-rate swaps) are common mitigants. Stress testing across a range of rate and prepayment vectors is essential before scaling exposures.
Near term, the trajectory for MBS spreads will be tied to the persistence of macro volatility, Fed policy expectations and geopolitical developments. If the market stabilises and Treasury yields retrace some of their spike, historical patterns suggest spreads could compress, benefiting buyers who stepped in at higher yields. That said, the timing of decompression is uncertain: the market could remain rangebound with wider spreads for months if volatility persists or if dealer-less liquidity conditions remain tight.
For institutional investors, the pragmatic approach is to calibrate allocations to MBS using execution-aware, staged buying strategies and to employ hedges that protect against adverse rate moves. Managers that purchase today should be explicit about scenario P&L and the liquidity of the positions under stress. Comparative performance versus core aggregate benchmarks will continue to be an important monitoring metric; as of Bloomberg's April 2, 2026 report, agency MBS had lagged the Bloomberg U.S. Aggregate index in the prior month, creating the relative-value argument for selective buying (Bloomberg, Apr 2, 2026).
Fazen Capital's view is that the recent dislocation is a classic active-manager opportunity, but it is not a blanket buy signal for passive or unconstrained allocations. Contrarian insight: buying MBS at wider spreads is attractive only when coupled with active execution that recognises convexity and prepayment asymmetries. Managers able to pair MBS purchases with duration hedges or to selectively target coupon buckets that benefit from slower prepayments are likely to achieve superior risk-adjusted returns versus a naive long-MBS approach.
We also see a structural change: lower dealer inventories and concentrated liquidity provision mean that future episodes of volatility may produce more episodic, deeper spread moves than in prior cycles. That raises the value of margin-of-safety in spread levels and the need for contingency funding or pre-arranged block-execution facilities. A measured, staged accumulation combined with robust scenario analysis will separate opportunistic buyers from those who underestimate execution and extension risks.
Fazen Capital continues to monitor liquidity metrics, dealer positioning and prepayment model updates on its research hub and advises institutional readers to consult dynamic hedging playbooks before materially altering MBS exposures. See our recent work on execution and trade-cost analysis at topic.
Q: How have MBS performed relative to Treasuries and the Bloomberg U.S. Aggregate in prior dislocations?
A: Historically, in episodes like 2013 and March 2020, agency MBS underperformed Treasuries during rapid rate moves due to spread widening and duration extension, then outperformed on the rebound as volatility subsided and Fed backstops or liquidity returned. The cycle-length varies; in 2020 the rebound was compressed into weeks, whereas post-2013 weakness persisted into months. The current episode shows similar dynamics but with thinner dealer liquidity, which can elongate recovery timelines.
Q: What practical steps should an institutional allocator consider if evaluating MBS now?
A: Practical measures include running stress tests across rate and prepayment scenarios, staging purchases to mitigate execution risk, using interest-rate hedges to limit duration exposure, and prioritising counterparty and settlement logistics. Additionally, consider coupon-bucket selection (e.g., lower-coupon agency pools tend to exhibit less negative convexity in rising-rate environments) and monitor dealer inventory metrics as an execution-cost leading indicator.
Widened MBS spreads (roughly 30–70 bps in March 2026, Bloomberg) and a ~60 bp rise in the 10-year yield have created selective buying opportunities for managers with execution capability, but material rate and liquidity risks mean allocations should be staged and hedged. The episode rewards active selection and disciplined risk management rather than indiscriminate buying.
Disclaimer: This article is for informational purposes only and does not constitute investment advice.
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