Mortgage & Structured Products Trader Powering Up

Credit Strategy Research 31 July 2026 | 5:19PM EDT

MORTGAGE & STRUCTURED PRODUCTS TRADER

MBS: Expect further modest MBS basis widening; 15-year MBS relatively cheap Arun Manohar | n An FOMC meeting perceived as being dovish in the face of above-target inflation, Goldman Sachs & Co. LLC coupled with strong economic data and rising oil prices, has pushed 10-year Ben Shumway Treasury yields to their highest levels YTD, alongside higher rate vol and a steeper | yield curve. Near term, these factors could widen the MBS basis. Goldman Sachs & Co. LLC

Neth Karunamuni n GSE portfolios were unchanged in Q2 after growing by an average of $15 billion | per month over the prior six months. Given macro volatility, investors are Goldman Sachs & Co. LLC

watching for the OAS level at which GSE demand begins to re-emerge. n We favor shorter-duration products and find 15-year MBS to be slightly cheap.

RMBS: Insurance demand for non-QM and CES ticks upwards n Quarterly annuity sales are estimated to have reached a record in Q2 2026, signaling strong insurance demand for fixed-income products. Using proxy data, we estimate that insurance companies’ recent pace of non-QM and CES deal purchases may have doubled relative to 2024. n Across ratings, we estimate that investment advisors (money managers) own a higher share of the AAA-rated tranche, while insurance companies own a higher share of the AA, A, and BBB-rated tranches.

Powering up: Datacenter ABS and CMBS balances could hit $130 billion by 2027 n Aggregate datacenter ABS and CMBS balances outstanding are just under $70 billion currently, providing an estimated 7GW of datacenter capacity, or 13.6% of aggregate capacity. n We forecast combined datacenter ABS/CMBS gross issuance of $38 billion and $49 billion during 2026 and 2027, respectively, taking the aggregate market size to $130 billion by year-end 2027. We believe that the share of capacity financed by ABS and CMBS will stay relatively flat over this period. n A large-scale refinance of corporate JV debt used to finance the construction of datacenters into the securitized market (upon datacenter completion) represents an upside risk to our forecast.

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Goldman Sachs Mortgage & Structured Products Trader

Agency MBS Expect further modest MBS basis widening in the near term; current coupon 15-year/20-year MBS and CMO front-sequentials offer value

The Fed left policy rates unchanged at the July FOMC meeting, in line with the forecast of our economics team. Our economists interpret Chairman Warsh’s comments at the press conference as leaning dovish. They continue to forecast relatively benign core inflation readings in the coming months and hence expect the Fed to stay on hold for the remainder of 2026. Market-implied hike probabilities and terminal rates declined slightly post-meeting, causing the Treasury yield curve to steepen. Stronger-than-expected data on Friday and an uptick in oil prices have likely pushed 10-year Treasury yields to new highs for the year. Long-end rates could stay volatile and directional with crude oil and economic data releases in the coming days.

Expect modest further widening in the MBS basis near term: As long as 10-year Treasury yields are elevated, we continue to believe that risks remain skewed towards a wider MBS basis than tighter spreads in the near term, as MBS trades with a high correlation to rates/rate vol and as the risk of fixed income fund outflows could increase once 10-year yields cross 4.8-5.0%. In addition, MBS spreads could exhibit some beta to the supply-driven widening in IG spreads. We recommend positioning for a modest tactical spread widening in the near term. We believe FN 5.5s and FN 6.0s remain quite rich and do not expect them to be supported by the GSEs at current spread levels (Exhibit 1).

Exhibit 1: Treasury OAS of FN 5.5s-6.0s remain close to the lower end of the YTD range—and potentially at levels that may not yet be attractive to the GSEs

bp FN 2.0s FN 2.5s FN 4.0s FN 4.5s 50 FN 5.0s FN 5.5s FN 6.0s…