Goldman Sachs Recommends Agency Mortgage-Backed Securities as Spreads Widen

Goldman Sachs is recommending a modest overweight allocation to agency mortgage-backed securities (MBS), citing a significant widening in spreads that has pushed yields to their most attractive levels since August 2025.

Spreads Reach Multi-Year Highs

According to the investment bank, the current coupon Treasury option-adjusted spread (OAS) reached 36 basis points as of Monday. This widening was driven by a sharp rise in long-end U.S. Treasury yields, which has pushed current coupon MBS yields above 6%.

Goldman Sachs noted that this yield level places the securities in the 95th percentile of their trading range over the past four years, signaling a potentially opportune entry point for investors.

Attractive Relative Value

The firm highlighted that agency MBS now appear particularly attractive when compared to investment-grade corporate bonds. Since September 8, MBS current coupon OAS widened by approximately 10 basis points, while the OAS for the investment-grade corporate index tightened by 3 basis points.

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Goldman's strategists also stated they are not overly concerned about the estimated $85 billion of net agency MBS supply that money managers may need to absorb in the second half of 2026. The current 36 basis point spread matches the average seen in 2024 and 2025, years when managers added over $200 billion of agency MBS to their portfolios.

Market Outlook

Looking ahead, Goldman Sachs projects the 10-year Treasury yield will end 2026 at 4.75%. The firm maintains a year-end target for the current coupon Treasury OAS at 25 basis points, suggesting an expectation for spreads to tighten from current levels.

For investors, the bank identified specific securities such as FN 5.0s and FN 5.5s trading at discount dollar prices as attractive options at their current valuations.