Mortgage-Backed Securities Insights — Week of January 26, 2026

Hi, I'm Jerry Levy, Managing Director of Texas Capital's Mortgage Securities Sales & Trading, and I'm happy to be back speaking to you.

Headline dystopia continued over the weekend with renewed tariff threats against Canada following the Greenland tariff threat and resolution last week at the World Economic Conference in Davos. The JGB market was relatively calm today following the severe 25 basis point move higher late last week and the erratic intraday move Friday in dollar yen trading. It went up to 160 only to close at 155, and today it moved below 154 on what we think is some kind of coordinated action between the Bank of Japan and the Fed. At this point this has only been evidenced by the Fed calling around banks to check levels on Friday.

Market participants fear coordinated bank action, which happens rarely. One can think back to the 1985 Plaza Accord for such coordinated actions in the FX markets. This is significant as the outside moves in the JGB and currency markets have really influenced U.S. Treasury trading, as Secretary Bessent relayed last week to the Bank of Japan. 

The MBS market is caught between OAS buyers, those looking to capture option-adjusted spread, while it is still positive. Remember, it was trading at 20 basis points in September and it's down to about five basis points now. This "chase the carry trade" makes sense in a steepening yield curve environment if you believe in the FOMC cutting two to three times further in 2026 after the 325 basis points move that we had at the end of 2025. To be sure, the FOMC meeting this week, expectations are for no movement at all. But the focus will be on Chairman Powell's Q&A: How will they address any further need for cuts post the Fed being under subpoena with a threatened criminal indictment?

It will also be interesting to see how the dove governors, Christopher Waller and Michelle Bowman, vote, given the perceived existential Fed independence crisis. As Supreme Court Justice Kavanaugh commented last week on Governor Lisa Cook's attempted force firing case by the administration, "The president's position would weaken, if not shatter, the independence of the Federal Reserve." 

BlackRock's Rick Rieder is now the frontrunner, according to Polymarket, to be announced maybe as soon as this week as the next Fed Chairman, with his odds now greater than Kevin Warsh's. Rieder is a well-known and respected fixed-income investor who has openly supported lowering the Fed funds rate. 

Those lower rates in 2026 have brought out refi activity. For the weekend of Jan. 16, refi activity increased 39% week on week, and that's up 220% year on year, before moving lower last week as the 30-year mortgage rate moved back over 6%. To note, there are now more agency mortgages greater than 6% outstanding then below 3%. And that's the first step to unlocking the lock-in effect and bringing supply back on the market. 

And finally, we return to affordability. The further $200 billion buying of Agency MBS (the agencies had bought actually $70 billion quietly in the last five months of 2025 before President Trump's tweet) took the basis down to the high 80s before returning to the high 90s last week. Remember, it was at 120 basis points in September. This alone has led 30-year mortgage rates to drop 25 basis points, but the administration is not done. They are going to limit institutional buying of single-family homes. They are working with homebuilders to find incentives and perhaps easier access to construction financing to spur more building. 

There are other potential actions that they're considering to lower cost. They want to lower Agency G and MIP fees; they are going to look at title insurance reform. They're also looking at the supply side of funds. Other measures being considered are tax credits for first-time homebuyers and making 401(k) savings eligible for down payments. All of these initiatives are to increase affordability, because they need to address the fact that the median age of first-time homebuyers moved to 40 from 28 years old a generation ago. Thank you for listening. Until next time.