Mortgage-Backed Bond ETFs
Mortgage-backed securities (MBS) are pools of US residential mortgages packaged together and traded as a single security. The leading MBS ETFs hold "agency MBS" — securities guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae — which carry essentially no credit risk but do have prepayment risk (homeowners refinancing or selling early shortens the bond's duration unexpectedly).
Available Funds
iShares MBS
iShares
Vanguard Mortgage-Backed
Vanguard
Frequently Asked Questions
What is an agency mortgage-backed security?▼
A pool of US residential mortgages whose principal and interest payments are guaranteed by one of the three US housing agencies — Fannie Mae, Freddie Mac, or Ginnie Mae. The agency guarantee removes virtually all credit risk; what remains is interest-rate risk and prepayment risk.
What is prepayment risk?▼
Homeowners can refinance their mortgages when interest rates fall, returning principal early. For MBS investors, this means receiving cash back when rates are LOW, forcing reinvestment at lower yields. Prepayment risk caps the upside of MBS during rate rallies — they typically underperform Treasuries when rates fall sharply.
Why hold MBS instead of Treasuries?▼
Agency MBS typically yield 0.5-1.5% more than comparable-duration Treasuries to compensate for prepayment risk. For investors comfortable with that risk, MBS can be a yield enhancer within an investment-grade portfolio.
Other Fixed Income Categories
Treasury yields and ETFs from 1-month bills to 30-year bonds.
Sovereign bond ETFs covering developed-market governments outside the US.
Total-market bond ETFs spanning Treasuries, corporates, and mortgages.
Investment-grade corporate debt, sliced by maturity.
Below-investment-grade corporate debt with elevated yields.
Treasuries whose principal adjusts with CPI inflation.
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