[Fed Rate Hike Expectations Impact Mortgage-Backed Securities Market, Bank Demand May Further Weaken] Jin10 News, October 12 – Over the past three weeks, investors have withdrawn from U.S. mortgage-backed securities (MBS) funds at an unprecedented pace, with outflows ranking among the seven worst since early 2021. As interest rates surge, investors are seeking to avoid market volatility risks. The U.S. Mortgage-Backed Securities Index recorded its second-worst monthly performance on record in September. Previously, U.S. Treasury yields soared to multi-decade highs, driven by surging oil prices, heightened inflation concerns, and market expectations of Fed rate hikes, triggering a sell-off in mortgage-backed securities. MBS are highly sensitive to sudden fluctuations in bond yields because bond yields serve as the benchmark for borrowing costs across the economic system. When interest rates rise, homeowners typically stop refinancing their mortgages, causing investors to hold low-yield securities for longer than initially anticipated. Strategist Erica Adelberg wrote: "The Fed's tightening of monetary policy and the flattening of the yield curve may weaken demand from banks, a key buyer of MBS. On the positive side, as mortgage rates climb to their highest levels since 2023, this suppresses refinancing and home-buying demand, potentially slowing the growth of home prices and loan sizes. As a result, MBS supply is expected to trend downward by the end of the year."