The expectation of the Federal Reserve's interest rate hike impacts the mortgage bond market

In the past three weeks, investors have withdrawn from U.S. mortgage bond funds at a historically rare pace, with the outflow ranking among the seven most severe since early 2021. As interest rates soared, the mortgage-backed securities index recorded its second worst monthly performance on record in September.

Strategist Erica Adelberg stated that the Federal Reserve's tightening of monetary policy may weaken banks' demand for MBS, and MBS supply is expected to decline before the end of the year.