Fed, Mortgages & PIMCO’s Recommendation

What’s happening now:
- The Federal Reserve has been reducing (not reinvesting) its mortgage bond holdings since 2022.
- This process is called quantitative tightening.
The problem:
- Mortgage spreads (the gap between Treasury yields and mortgage rates) are unusually wide—about 230 basis points.
- That’s keeping 30-year mortgage rates high, around 6.35%.
PIMCO’s suggestion:
- The Fed should stop shrinking its mortgage holdings and reinvest the payments it receives.
- Doing this could lower mortgage rates by 20–30 basis points (0.20%–0.30%).
- A more aggressive approach (reinvest + adjust holdings) could cut rates by 40–50 basis points.
Why this matters:
- This strategy could lower mortgage rates as much as a full 1% Fed rate cut would—but faster.
- If the Fed does nothing, mortgage rates may stay elevated through 2026.
- That could make homeownership feel like a luxury for the wealthy, shutting out many buyers.
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