Returns from funds investing primarily in government-related mortgage securities were stronger in the first quarter than they were in the fourth quarter of 2016, but aren't quite as strong as in the first quarter of 2016.
Ginnie Mae mortgage-backed securities funds' average cumulative total return in the first quarter was 0.26%, according to Thomson Reuters' Lipper fund research unit. That's up from -1.56% in the fourth quarter last year but down from 1.33% the same period a year ago.
U.S. mortgage funds that invest primarily in Fannie Mae and Freddie Mac mortgage-backed securities generated a 0.76% return during the first quarter of this year, as compared to 1.54% during the same quarter a year ago and -1.85% during the fourth quarter of 2016.
Two Bank of Montreal funds which produced a return of 3.01% were tied for No. 1 among U.S. mortgage funds during the first quarter. A PIMCO fund that produced a return of 0.55% ranked No. 1 among Ginnie Mae funds during the same period.
Over the 12-month period ending March 31, U.S. mortgage funds generated a 1.22% return. Over the five-year period leading up to that date U.S. mortgage funds generated an 11.82% return.
Ginnie Mae funds over the 12-month period ending March 31 generated a -0.02% return. Over the five-year period leading up to that date Ginnie funds generated a 6.59% return.
Investment in government-related MBS by mutual funds and other private investors will become increasingly important to the market because Federal Reserve officials are making plans to let the Fed's MBS portfolio run off. If other investors don't fill the gap, there could be upward pressure on rates.