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ETF Specialist

Mortgage-Backed Securities: A Closer Look at a Core Bond Fund Staple

These securities feature prominently in most core bond funds.

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Agency mortgage-backed securities are one the largest and most liquid areas of the fixed-income market. MBS’ yield premium relative to U.S. Treasury bonds is compelling. But it doesn’t come without risk. Here, I’ll provide an overview of the MBS market and share a list of Morningstar Medalist funds that include exposure to this sector.

What Are MBS?
MBS stand out among fixed-income securities because of their credit quality and optionality. Referred to as pass-through securities, MBS are pools of mortgages combined into a single asset, which pass through (on a pro rata share) the underlying interest and principal payments on those mortgages to MBS investors.

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Neal Kosciulek does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.