Why mortgage bonds are set to deteriorate, and possibly hit the whole market, according to this Wall Street expert

Mortgage-backed securities (MBS) could come under pressure as the Treasury yield curve flattens, according to Harley Bassman. The curve — the gap between short- and long-dated Treasury yields — is a key input for how MBS are priced and hedged, so when its shape shifts, the economics of holding these bonds can change quickly.

The concern is not isolated to mortgages. MBS are widely held by banks, insurers, and funds, and they are closely tied to the broader rates market. If mortgage bonds weaken, the effects can ripple outward, since these securities often sit alongside Treasuries and other fixed-income assets in the same portfolios. That linkage is why a mortgage-specific issue can carry wider market relevance.

For observers, the takeaway is to watch the yield curve's slope and how MBS spreads behave relative to Treasuries. Those two signals help show whether pressure is contained or spreading. The development is a reminder that mortgage bonds are not a standalone market — their health is bound up with the broader rate environment.