US mortgage-backed securities and structured-products market: Goldman Sachs sees the MBS selloff as a more resilient, attractive entry point than October 2023

Overview

This structured-products market update argues that the Treasury-driven MBS dislocation is materially less severe than the October 2023 episode and supports a modest overweight in agency MBS. It then sets out relative-value preferences across agency MBS, RMBS and ABS, alongside ABS issuance forecasts for 2026 and 2027.

Core views

Goldman Sachs argues that agency MBS is in substantially better shape than during the October 2023 selloff, even though 10-year Treasury yields have surpassed that period's peak and current-coupon MBS OAS has widened. The firm upgraded its MBS view to a modest overweight on September 17, when current-coupon Treasury OAS reached 36bp after the hawkish September FOMC meeting, around 10bp above its long-term average. OAS later tightened to 29.5bp as long-end yields stabilized, but renewed rate volatility widened spreads back to post-FOMC highs. Goldman Sachs views this reversal as an attractive entry point, while retaining capacity to add if MBS underperforms further or Treasuries sell off further. It does not expect current-coupon OAS to approach the more than 55bp reached in 2023 and retains a 25bp year-end 2026 target. The comparison with 2023 rests first on a less adverse macro and volatility backdrop. In 2023, yields rose rapidly from lower starting levels while inflation remained elevated and the Federal Reserve was delivering several 75bp hikes. One-year into 10-year swaption volatility is roughly 97bp currently, versus more than 130bp in October 2023. The earlier episode also featured sharp MBS price declines, portfolio instability and forced liquidations, including Silicon Valley Bank's MBS portfolio sales. In the current episode, portfolios are better positioned through higher coupons, specified pools with greater extension protection than TBAs, shorter duration and floating-rate cash flows. With only a small share of the universe genuinely refinanceable, convexity-related selling has been more limited. Demand and relative value form the second support for the agency-MBS case. Fixed-income funds have received strong inflows during the year despite recent moderation, and investors have been expressing MBS overweights not only against Treasuries but also against corporate bonds. The report notes that IG corporate spreads are roughly half their 2022-23 widest levels; since September 8, current-coupon MBS OAS widened by more than 10bp while IG corporate-index OAS tightened by 3bp. Goldman Sachs therefore sees agency MBS as a more attractive alternative to tight IG credit. A further technical backstop may come from Fannie Mae and Freddie Mac: the GSEs have more than $110 billion of capacity to buy agency MBS under their portfolio caps and historically were net buyers when higher-coupon OAS exceeded 30bp. The report says renewed GSE buying, potentially focused on conventional MBS, could limit spread widening. Within agency products, higher-coupon 30-year FN OAS has reached five-month wides, while FN 2.0s-2.5s have widened to about 11-13bp and near the wide end of their year-to-date range. Although 15-year FN MBS and 30-year GNMA MBS have cheapened relative to 30-year FN MBS, Goldman Sachs continues to prefer 30-year FN MBS because conventional-demand technicals appear stronger. It expects banks to need confidence that rates have settled into a new range before returning to GNMA purchases. Agency CMBS has also widened: DUS 10/9.5 TBA reached 45bp, roughly 9-10bp wider week over week, versus only 3-4bp widening for low-coupon FN MBS, making agency CMBS more attractive relative to low-coupon MBS. For CMO floaters, the market is pricing nearly four additional Fed hikes over the next 12 months beyond the September hike. Lower-cap structures are at risk of becoming capped under SOFR forwards, contributing to wider discount margins and concerns about forced selling by leveraged holders. Goldman Sachs' economists expect a more dovish path than markets imply, which could make lower-cap floaters attractive for investors with a strong policy-rate view. For more conservative positioning, the report prefers 7.0% cap agency CMO floaters. It also notes that 7.0% cap AAA floaters from Prime RMBS offered 145bp over SOFR in a JPMMT deal and 160bp over SOFR in an OBX deal, with the JPMMT tranche offering nearly 25bp more spread than a comparable agency floater at the cost of liquidity. In fixed-rate RMBS, non-QM AAA spreads have remained resilient despite elevated front-end volatility and a market-implied 100bp-plus Fed hiking cycle. In 2022, non-QM AAA spreads widened to as much as 250bp when front-end yields sold off sharply. Goldman Sachs attributes the current resilience to a smaller rate move and broader investor sponsorship; the spread between non-QM AAAs and the agency-MBS basis remains around, or marginally tighter than, its longer-term average. The firm continues to favor non-QM AAAs, while noting emerging questions over whether issuers will allow transactions to extend rather than call them as assumed at pricing. The report's ABS outlook is one of broad continuity into 2027. It forecasts 2026 gross issuance of $278 billion and net issuance of $60 billion across tracked categories, following $37.2 billion of net issuance year to date, and forecasts $287 billion gross and $73 billion net in 2027. The central macro assumption is broadly sideways GDP growth, with consumer spending potentially softening amid slower nominal wage growth, higher gasoline prices and the fading tax-refund boost. Digital infrastructure is expected to remain the dominant ABS theme: Goldman Sachs forecasts $25 billion of datacenter ABS and $42 billion of total digital-infrastructure ABS in 2026, rising to $31 billion and $55 billion, respectively, in 2027. Political backlash against datacenter construction and resulting moratoriums or delays are identified as downside risks. Across consumer ABS, consumer unsecured issuance is expected to reach $40 billion in 2026 versus $35 billion in 2025, with further 2027 growth led by point-of-sale lending. Home-improvement ABS is expected at about $6 billion in 2026 and $7 billion in 2027 as the sector matures and weak housing affordability encourages homeowners to improve rather than move. Non-FFELP student-loan ABS is expected to finish 2026 at $15 billion, modestly below 2025, with a modest 2027 pickup supported by federal borrowing caps under the One Big Beautiful Bill Act. Solar ABS is expected to remain subdued at $3 billion in both 2026 and 2027 because of higher-than-expected defaults, slower-than-expected prepayments and prior issuer bankruptcies. Goldman Sachs expects credit-card and prime-auto ABS issuance to continue declining as high rates make securitization financing inefficient for bank issuers, while deposits and possible Basel III endgame relief favor balance-sheet retention. Prime-auto supply contraction has coincided with tighter new-issue spreads. The report expects subprime-auto issuance to remain comparatively resilient because increased originations, concentrated in the 620-659 credit-score bucket, partly offset greater loan retention, though collateral performance is deteriorating. Its sector views include neutral prime auto, underweight subprime auto with an up-in-quality and manager-selective stance, overweight consumer unsecured versus subprime auto, overweight home-improvement ABS versus consumer unsecured, underweight solar, and a preference for diversified digital-infrastructure exposure tilted toward hyperscalers and datacenter trusts with strong debt-service coverage and long leases.

Analysis framework

The report compares the current rate selloff with October 2023 using MBS OAS, interest-rate volatility, portfolio positioning, fund flows, corporate-credit relative value and prospective GSE demand. It then applies spread, duration, convexity, coupon, cap-risk and liquidity comparisons to structured-product sectors, before forecasting ABS issuance by sector from market trends, funding conditions, consumer fundamentals and policy changes.

Methodology notes

• Fixed Income and CreditSpread analysis

  Option-adjusted spread and discount-margin relative-value analysis

  The report compares MBS, RMBS, CMBS and ABS spreads with their historical ranges and with alternatives such as IG corporate bonds to judge relative value.

• Fixed Income and CreditYield curve analysis

  Interest-rate, coupon, duration and convexity analysis

  Goldman Sachs links Treasury-yield moves, implied policy rates and rate volatility to MBS extension risk, coupon performance and floater cap risk.

• Industry AnalysisSupply-demand framework

  Issuance-and-demand analysis

  The report assesses spread support through fund inflows, potential GSE purchases and projected structured-product issuance by ABS subsector.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Agency MBS

  Modest overweight; preferred against tight IG corporate spreads.

  Strengths

  More resilient backdrop than 2023, supportive demand, widened spreads and potential GSE buying.

  Weaknesses

  Spread performance remains sensitive to Treasury yields and rate volatility.

  Comparison

  Goldman Sachs prefers MBS versus IG credit and 30-year FN MBS versus GNMA MBS.

  Risks

  Further Treasury selloff, geopolitical uncertainty and continued MBS-basis correlation with 10-year Treasury yields.

• Non-QM AAA RMBS

  Favored within fixed-rate RMBS.

  Strengths

  Spreads have remained resilient and the spread pickup versus the MBS basis is around its longer-term average.

  Weaknesses

  Potential extension concerns if issuers do not call transactions as assumed.

  Comparison

  Better convexity profile than CES, though CES has somewhat worse liquidity.

  Risks

  Elevated front-end rate volatility and extension risk.

• 7.0% cap agency CMO floaters

  Preferred CMO-floater positioning for conservative risk appetite.

  Strengths

  Wider discount margins and lower cap risk than lower-cap structures.

  Weaknesses

  Prime RMBS alternatives can offer more spread but less liquidity.

  Comparison

  Preferred over lower-cap agency floaters; Prime RMBS 7.0% cap AAA floaters offered 145-160bp over SOFR.

  Risks

  Market-implied Fed hikes could cause lower-cap floaters to become capped and may trigger forced selling by leveraged holders.

• Digital infrastructure ABS

  Neutral at the sector level, with preference for hyperscaler exposure.

  Strengths

  Datacenter ABS remains a dominant issuance theme; selected trusts offer long operating histories, high DSCRs and long lease terms.

  Weaknesses

  Wide dispersion across datacenter trusts; datacenter CMBS is smaller and less diversified.

  Comparison

  Fiber ABS is less exposed to AI risk and trades tighter than datacenter ABS; datacenter CMBS trades wider than datacenter ABS.

  Risks

  Datacenter construction moratoriums or delays could reduce issuance.

Key data

• Current-coupon MBS OAS at September 17 upgrade36bpRoughly 10bp above the long-term average after the hawkish September FOMC meeting.
• Tightest subsequent current-coupon MBS OAS29.5bpReached after long-end Treasury yields stabilized, before renewed volatility widened spreads again.
• October 2023 current-coupon MBS OASMore than 55bpGoldman Sachs does not expect 2026 spreads to return near this level.
• Year-end 2026 current-coupon MBS OAS target25bpGoldman Sachs' maintained target.
• 1yrx10yr interest-rate volatilityRoughly 97bp currently versus more than 130bp in October 2023A key reason the firm considers the current environment more resilient.
• Potential GSE agency-MBS buying capacityMore than $110 billionCapacity under existing portfolio caps.
• ABS gross/net issuance forecast$278 billion/$60 billion in 2026; $287 billion/$73 billion in 2027Tracked ABS categories, including digital infrastructure and consumer-focused ABS.
• Digital-infrastructure ABS forecast$42 billion in 2026 and $55 billion in 2027Includes datacenter ABS forecasts of $25 billion and $31 billion, respectively.

Impact & implications

Goldman Sachs views the present MBS spread widening as a relative-value opportunity rather than a replay of 2023, supported by more stable volatility, better-positioned holders, broad demand and possible GSE purchases. Its structured-product positioning favors higher-quality and rate-resilient exposures while distinguishing sectors where funding costs, supply contraction, collateral performance or construction risks may constrain issuance or valuations.

Risks

• A further sharp rise in Treasury yields or persistently elevated rate volatility could widen MBS spreads and increase extension risk.
• Geopolitical uncertainty and the MBS basis' correlation with 10-year Treasury yields remain key agency-MBS risks.
• Political backlash against datacenter construction could create moratoriums or delays and reduce digital-infrastructure ABS issuance.
• Solar ABS faces higher-than-expected defaults, slower prepayments and pressure from prior issuer bankruptcies.
• Subprime-auto collateral performance is deteriorating, requiring an up-in-quality, manager-selective approach.

What to watch

• Whether Treasury yields and interest-rate volatility stabilize sufficiently for meaningful MBS spread tightening.
• Whether Fannie Mae and Freddie Mac resume agency-MBS purchases as higher-coupon OAS tests local wides.
• The Fed path implied by SOFR forwards versus Goldman Sachs economists' more dovish expectation.
• Non-QM issuer call incentives and the possibility that transactions extend longer than assumed at pricing.
• ABS issuance trends in digital infrastructure, consumer unsecured, student loans and home improvement, along with datacenter construction policy.