Banks Snatch Up MBS That Notched Best Returns Since 2002 (1)

Flush with deposits, US banks are buying up mortgage bonds and betting that the asset class will get a further boost in 2026 from relaxed capital rules.

Late last year, commercial bank holdings of mortgage paper reached the highest level since 2023, and stood at more than $2.7 trillion toward the end of December, according to Federal Reserve data that wasn’t seasonally adjusted. That sum has increased for four consecutive months through November, the longest such streak since the end of 2024.

As the Fed cuts rates, companies and consumers have less to lose by putting money in low-yielding or ...