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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.

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