Mortgage Bonds Rally as Trump Demands $200 Billion of Purchases

U.S. President Donald Trump announced on January 8, 2026, that he has directed government representatives to purchase $200 billion in mortgage-backed securities (MBS). The move is intended to lower mortgage rates and improve housing affordability. Trump stated the initiative would be funded through Fannie Mae and Freddie Mac, which hold significant cash reserves.

The plan aims to narrow mortgage spreads and reduce monthly payments for homeowners. Trump described the move as part of a broader strategy to address housing affordability. The proposal revives the use of state-led intervention in housing finance markets.

Mortgage-backed securities rallied in response to the announcement. The Fannie Mae current coupon spread over five- and 10-year Treasuries narrowed by as much as 0.1 percentage point. This move indicates investor optimism about the potential impact of the proposed MBS purchases.

Why Did This Happen?

The Trump administration framed the MBS purchases as a direct intervention to lower mortgage rates. Trump cited the deteriorating housing affordability caused by rising mortgage rates. He argued that Fannie Mae and Freddie Mac, which were not sold during his first term, now hold sufficient resources to support the plan.

The proposed MBS purchases are linked to the government-sponsored enterprises' balance sheets. These entities are currently valued at levels that Trump described as significantly higher than in the past. The plan could influence long-term interest rates and stabilize the housing market.

How Did Markets React?

Markets responded positively to the announcement. Mortgage bonds rallied relative to Treasuries. Risk premiums on newly issued MBS narrowed, indicating improved investor sentiment.

The iShares U.S. Aerospace & Defense ETF also experienced fluctuations. The ETF was down 1.4% in late afternoon trading after Trump raised concerns about defense industry buybacks. This highlights the broader market sensitivity to Trump's economic interventions.

What Are Analysts Watching Next?

Analysts are monitoring the impact of tightening MBS spreads. BTIG upgraded Annaly Capital Management to Buy as MBS spreads reached multi-year tights. The firm noted the potential for further narrowing, which could benefit mortgage REITs.

AGNC Investment was downgraded to Neutral as spreads tighten. Analysts are watching whether the Trump Administration will pursue additional policy measures to influence mortgage rates. These measures could affect the valuation and performance of mortgage securities.

Investor attention is also on the broader housing policy agenda. Trump announced plans to ban institutional investors from buying single-family homes. This move aims to address housing affordability by reducing speculative demand.

The housing market remains under pressure as affordability metrics are stretched. Despite easing inflation, home prices continue to rise, making housing less accessible for many Americans. Trump's interventions could signal a shift in the government's role in managing housing costs.

The potential for further policy changes is a key focus. Trump is set to discuss additional housing reforms at the World Economic Forum in Davos. These reforms could shape the future of the U.S. housing market and influence investor sentiment.