Agency mortgage-backed securities rally continues in 2026 after best year since 2002.

Agency mortgage-backed securities (MBS) had their strongest performance since 2002, rising over 8.5% in 2025. This rally is supported by a stable interest rate environment, a steepening yield curve, and strong demand from government-sponsored enterprises, making MBS an attractive fixed-income option. Passive ETFs like Schwab's SMBS and active funds like PIMCO's PMBS have seen significant inflows, reflecting investor interest in both low-cost indexing and active management strategies. The outlook remains positive as the Federal Reserve is expected to maintain steady rates, reducing refinancing risk and supporting MBS yields.