Asset managers, including Columbia Threadneedle, are closely monitoring U.S. mortgage-backed securities (MBS) as a safe haven to avoid the high valuations of corporate bonds and a potential wave of tech bond issuances that could impact returns. JPMorgan strategists noted that, excluding refinancing, the total issuance of U.S. investment-grade bonds in 2026 could exceed $800 billion, marking a net increase of about 54% from this year. A significant portion of these issuances is expected from tech companies investing in AI infrastructure, such as data centers. The surge in supply may widen risk premiums, with JPMorgan forecasting a 0.15-percentage-point expansion in spreads for high-grade U.S. corporate bonds by 2026.

Ben Hansack, portfolio manager and head of structured credit at Bain Point Capital, remarked, "If you're a hyperscale cloud company making massive AI investments, the additional interest expense from wider spreads is almost negligible. Hyperscalers are funding data center construction through a mix of project financing and corporate bonds, but the path of least resistance likely lies in corporate debt."

Meanwhile, MBS are poised for their strongest returns in two decades. As of last Friday, the Bloomberg U.S. Mortgage-Backed Securities Index had surged 8.35% in 2025, nearing its 2002 peak of 8.75%.

Morgan Stanley highlighted that while corporate bond supply is rising, MBS net supply may only see a modest increase next year, partly due to elevated home prices and mortgage rates dampening housing activity. Demand for MBS, however, could strengthen, bolstering performance. For instance, REITs have been increasing MBS purchases as high stock valuations help them raise cash. The bank also suggested that banks might buy more MBS once capital rules and stress test requirements become clearer, with the Fed aiming to finalize Basel III endgame rules by early next year. Government-backed mortgage firms like Fannie Mae and Freddie Mac could also boost MBS purchases.

Valuation-wise, MBS may not be cheap but are less expensive than corporate bonds. Morgan Stanley data shows that as of last month, high-grade corporate bonds were in the third percentile of valuations over the past 20 years—rarely pricier than now—while MBS stood at the 20th percentile.

As of Friday, spreads for high-grade U.S. corporate bonds averaged around 0.8 percentage points (80 basis points), far below the two-decade average of 1.48 percentage points. These bonds have gained roughly 8% this year.

Alex Christensen, portfolio manager at Columbia Threadneedle Investments, said, "We’ve gradually shifted to MBS because long-dated investment-grade bond spreads no longer provide sufficient cushion against risks like increased issuance or deteriorating fundamentals."

MBS still carry risks. Investors are essentially betting that uncertainty around rate movements (i.e., rate volatility) will decline—a favorable wager for much of this year, with a key volatility metric dropping since April. However, Bain Point’s Hansack warned that inflation could resurge next year as the Fed cuts rates further, and Japan’s planned post-pandemic fiscal stimulus might push up long-term U.S. yields—both scenarios potentially reigniting rate volatility.

Some investors are reallocating from corporate bonds to other securitized debt. Brian Kennedy, portfolio manager at Loomis Sayles, is eyeing higher-yielding instruments like collateralized loan obligations and bonds backed by franchise fees, aiming to minimize interest rate risk (especially duration exposure) while maximizing yield.