JP Morgan launches new MBS agency index

Jul 27th, 2017 | By | Category: Fixed Income

JP Morgan has unveiled the JP Morgan MBS Agency Index (MAX), tracking the largest and most traded fixed-rate agency issues in the US mortgage-backed securities (MBS) market. The index is suitable as a benchmark in discretionary fund management or as an underlying reference index for index-linked investment products such as ETFs.

Mortgage Property ETF REIT, Real Estate

The JP Morgan MBS Agency Index includes over 400 aggregates and covers approximately 85% of the US agency market.

“Agency MBS is one of the largest and most liquid asset classes in the US. With the launch of MAX, we hope to further engage our clients who wish to invest in this sector,” said Brian Ye, head of agency MBS research at JP Morgan.

The market value-weighted index combines 30-year, 20-year and 15-year mortgage-backed securities, including over 400 aggregates, to cover almost 85% of the US agency market (as of 30 June 2017).

Eligible MBS must have a minimum weighted-average maturity of 12 months and a minimum aggregate size of $500m. Fannie Mae, Freddie Mac and Ginnie Mae I/II mortgages make up 43%, 27% and 30% of the index respectively.

The index aggregates prices from the CUSIP level up, making it the first institutional agency mortgage index built on individual security valuations. Prices are settled the same day in the index compared to other mortgage index pricing, which relies on a combination of PSA settlement and internal trader marks. With the use of same-day settled prices, JP Morgan asserts that tracking error will be reduced.

According to JP Morgan, the index further reduces tracking error by reflecting monthly agency factor updates from the sixth business day of the month, compared to delays until the 15th business day in other indices. The agency ‘pool factor’ is the percentage of the original principal that is left to be distributed in a MBS.

“The JP Morgan MAX Index is a contemporary and comprehensive benchmark of the agency MBS market,” added Gloria Kim, head of global index research at JP Morgan. “Our index accurately tracks an extensive history of the asset class, while offering modern refinements including robust third party pricing, timely factor updates and customization opportunities.”

US investors looking for exposure to the US MBS market through an ETF could consider the iShares MBS ETF (NYSE Arca: MBB) which tracks the Bloomberg Barclays MBS Index and has assets under management (AUM) of over $10 billion. iShares recently cut the fees on this ETF from 0.27% to just 0.09%.

For European invetsors, the iShares US Mortgage Backed Securities UCITS ETF (LON: IMBS) tracks the same index as MBB. It has $290m in AUM and a TER of 0.28%.

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