Agency MBS Valuations are Historically Cheap

Agency MBS offer historically cheap valuations, attractive yields, and a defensive profile, with PMBS leading in mortgage-backed bond investing.

By PIMCO · January 1, 1970

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Agency MBS offers attractive starting yields and historically cheap valuations, paired with a defensive profile in risk-off environments. The volatility-adjusted spread is 63 bps, placing it in the 89th percentile historically, meaning it’s only been cheaper about 11% of the time. In our view, these valuations present a compelling entry point, with the potential to increase carry versus other high-quality sectors while also moving up in credit quality.

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As of 31 October 2025. Source: PIMCO. Spreads are shown against SOFR Swaps. "Rich” and “Cheap” defined as 1 standard deviation from average OAS. “2x Rich” and “2x Cheap” defined as 2 standard deviations from average OAS. The terms “cheap” and “rich” as used herein generally refer to a security or asset class that is deemed to be substantially under- or overpriced compared to both its historical average as well as to the investment manager’s future expectations. There is no guarantee of future results or that a security’s valuation will ensure a profit or protect against a loss.

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Why Consider Agency MBS in Today's Market

Attractive Valuations: Current valuations are compelling, with spreads and yields near their most attractive levels in over a decade, providing the potential for strong risk-adjusted returns and limited prepayment risk
Improving Demand: With demand from banks, asset managers, and GSEs on the rise and new issuance remaining subdued, the supply-demand balance for Agency MBS is increasingly favorable, positioning the asset class for strong forward performance as more buyers are likely to step in and support valuations
Low Prepayment Risk: Agency MBS tend to offer higher yields than U.S. Treasuries because they carry prepayment risk. However, that risk is minimal today since most outstanding mortgages have rates well below today's mortgage rates, making early refinancing unlikely

PMBS Stands Out Against the Crowd

Category Leader in Mortgage Investing: PMBS is the #1 ranked Government Mortgage-Backed Bond Fund over the trailing 3- and 10-year periods, underscoring its long-term consistency and leadership in mortgage investing
Access to PIMCO's Mortgage Investing Edge: With nearly 40 years of mortgage investing and over $150 billion in Agency MBS exposure firmwide, PMBS benefits from PIMCO’s scale, deep resources, and proven investment process
Time-tested Active Management: PMBS dynamically invests across the Agency MBS market to capture relative value opportunities, optimize yields, mitigate downside risk, and maximize return potential

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.

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