US mortgage bond funds see historic outflows amid rising rates
Summary
Investors have pulled out of US mortgage bond funds at historic levels over the past three weeks, marking one of the seven worst outflows since 2021. This shift comes as Treasury yields hit multi-decade highs and expectations of tighter monetary policy create volatility in the market, leading to intensified selling. Additionally, the retreat reflects a broader trend, as exchange-traded funds holding US mortgage-backed securities have seen their largest monthly outflows since the pandemic, driven by concerns over higher mortgage rates extending the duration of mortgage-backed securities and exposing funds to suboptimal loan coupons.
Analysis
US mortgage bond funds: US mortgage bond funds invest primarily in mortgage-backed securities, whose prices and duration are sensitive to changes in Treasury yields and refinancing behavior. They are relevant to the reported event because investors have recently withdrawn heavily from funds holding US mortgage-backed securities as rising yields and heightened bond-market volatility reduced their appeal. Flows: Exchange-traded funds holding US mortgage-backed securities recorded their largest aggregate monthly outflows since the pandemic period, reflecting a broad retreat from the asset class. Rates: The selling intensified as Treasury yields reached multi-decade highs amid expectations of tighter monetary policy, putting pressure on mortgage-bond prices. Duration: Higher mortgage rates can reduce homeowner refinancing, extending the duration of mortgage-backed securities and leaving funds exposed to below-market loan coupons for longer.
Categories
macropolitics
Related sources
- https://www.briefs.co/news/mortgage-bond-funds-see-biggest-investor-pullback-in-years-a/
- https://www.bisnow.com/news/national/capital-markets/investors-flee-mortgage-backed-securities-as-interest-rates-eat-at-returns
- https://bloomberg.com/news/articles/2026-10-01/investors-shed-mortgage-bond-etfs-at-fastest-rate-since-2020
- https://www.benzinga.com/etfs/sector-etfs/26/10/62145669/record-2-7b-blackrock-mortgage-bond-etf-outflow-tops-global-financial-crisis-covid-19-whats-driving-the-exodus
- https://finance.yahoo.com/real-estate/articles/mortgage-bond-etfs-see-biggest-173303011.html
- https://stocktwits.com/news-articles/markets/equity/us-mortgage-et-fs-see-heavy-outflows-as-elevated-interest-rates-make-homebuying-expensive/cZD0i0WRB0W
- https://wisevoter.com/world/us/2026/10/01/investors-withdraw-2-4-billion-mortgage-etfs
- https://www.sec.gov/Archives/edgar/data/225030/000199937126001503/hit4q25pecom-497_012326.htm
- https://www.realtor.com/news/trends/global-bond-markets-crisis-treasury-yields-mortgage-rates/
- https://news.futunn.com/post/1000502016/mortgage-etfs-see-biggest-outflows-since-2020-as-5-treasury