Goldman Sachs Mortgages & Structured Products Trader: At a Crossroads
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Goldman Sachs argues Agency MBS sit at an interest-rate crossroads. A relentless rise in 10-year Treasury yields has pushed the current-coupon Treasury OAS to roughly 26bp, the widest of the year, yet only in line with the long-term average, so the opportunity is not yet attractive. Coupon performance hinges on the rate path: if yields surge further, FN 5.5s/6.0s could underperform on duration-extension risk; if rates stabilize, FN 6.0s should win on carry; lower rates favor mid-coupons such as FN 5.0s. With mortgage rates at 6.75%, spec-pool payups have declined monthly since March, and loan-balance pools outperform given lower policy risk. GSE demand is not policy-constrained—Fannie and Freddie portfolios of $175.8bn and $160.9bn sit well below the $225bn PSPA cap—but buying should stay muted until high-coupon OAS exceeds 30bp; Goldman cut its 2026 GSE demand estimate from $125bn to $75bn. In RMBS, record Non-QM issuance of $81bn YTD (+~70% YoY) drove the 2026 forecast up to $120bn; Prime rose to $60bn, second liens hold at $43bn. In ABS, coupon/loss and enhancement/loss ratios show no predictive power for large subprime auto issuers' spreads; with A-spreads near multi-year tights versus A-rated corporates and elevated loss forecasts, Goldman recommends underweighting subprime auto ABS, preferring MBS over IG credit and overweighting Non-QM AAA within the basis.
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