The available evidence does not establish that investors broadly are withdrawing from mortgage-backed funds. A Federal Reserve series for a narrow category of interval and tender-offer funds shows lower transactions in mortgage-backed and other asset-backed bonds in Q2 2026 than a year earlier, while assets in that category rose. Broader bond-fund flow estimates do not isolate mortgage-backed securities (MBS), and a single MBS ETF’s return says nothing by itself about investor flows.
What the available data say about MBS fund outflows
To determine whether investors are leaving MBS funds, the useful measures are fund-specific subscriptions and redemptions or ETF net issuance over a stated period. The available sources do not provide a comprehensive series of those flows across MBS mutual funds and ETFs. Instead, they measure different populations and activities, so they cannot be combined into a reliable industry-wide outflow claim.
A narrow Federal Reserve series: transactions and assets
The Federal Reserve Financial Accounts series reproduced by FRED covers interval and tender-offer funds and their mortgage-backed and other asset-backed bond transactions. It reports transactions of $8.676 billion in Q2 2025 and $2.320 billion in Q2 2026, both at a seasonally adjusted annual rate. The companion series shows assets rising from $18.482 billion to $22.037 billion over those same quarters. The observations were updated September 16, 2026. These figures describe one specific fund population and a combined MBS/other-ABS category; they are not redemptions across all MBS funds or ETFs. See the transactions series and asset-level series.
| Measure | Q2 2025 | Q2 2026 | What it represents |
|---|---|---|---|
| Transactions | $8.676 billion | $2.320 billion | Interval and tender-offer funds’ MBS and other ABS bond transactions, at a seasonally adjusted annual rate; not broad MBS-fund redemptions. Board of Governors of the Federal Reserve System, via FRED. |
| Assets | $18.482 billion | $22.037 billion | Assets in the same narrow fund and bond category; an asset level, not subscriptions or redemptions. Board of Governors of the Federal Reserve System, via FRED. |
The two measures need not move together: transactions record activity in the specified category, while assets measure its value at a point in time. Neither series alone establishes whether investors as a whole are withdrawing from MBS-focused funds.
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Broad bond-fund estimates do not isolate MBS
The Investment Company Institute’s September 30, 2026 release estimated $8.162 billion of inflows to the broad bond-fund category for the week ended September 23, 2026. That is not an MBS-specific figure. ICI reports estimates for mutual funds and ETF net issuance separately, and says actual mutual-fund net new cash flows are collected monthly; weekly estimates can differ from those monthly data. Treat the weekly number as a broad estimate, not a final or MBS-only flow measure. ICI’s combined flow reporting explains its scope and methodology.
Why rate volatility can matter without proving withdrawals
Rate changes can affect the market prices and returns of bonds and bond funds, including funds that hold MBS. But the cited evidence does not show that rate volatility caused broad investor withdrawals from MBS funds. A fund’s market performance, its holdings, and the direction of investor flows are different measures.
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Fund performance is not a flow statistic
For the year ended February 28, 2026, BlackRock reported a 7.46% return for iShares MBS ETF, compared with 7.54% for the Bloomberg US MBS Index. BlackRock said MBS gained during the reporting period amid lower rates and reduced market volatility. This is one ETF’s historical performance, not evidence of industry-wide buying or selling; the report cautions, “Past performance is not an indication of future results.” See the iShares MBS ETF annual shareholder report.
Stress analysis is not a report of actual MBS sales
The International Monetary Fund estimated $66 billion in forced bond-fund sales in a scenario pairing the April 2025 outflow pattern with a 60-basis-point rate increase. More than half of the modeled liquidation was Treasury securities. This was hypothetical stress analysis, not realized sales or an MBS-specific estimate; the IMF also noted that monthly flow data may not capture shorter-term patterns. The IMF’s October 2025 Global Financial Stability Report, Chapter 1 gives the scenario and its assumptions.
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Do not confuse bank MBS holdings with fund investor flows
The Federal Reserve’s May 2026 Financial Stability Report says some large US banks continued to hold a significant share of high-quality liquid assets in long-duration agency MBS. With market prices below original book values, selling could require those banks to recognize losses; the report says they would likely rely on repo access to generate liquidity without affecting regulatory capital. That is a bank balance-sheet and funding issue, not evidence that mutual-fund or ETF investors are redeeming shares. The report’s separate early-2026 observation that inflows largely offset outflows concerned high-yield corporate bond and bank-loan mutual funds, not MBS funds. See the Fed’s Funding Risks section.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to evaluate a claim that investors are leaving MBS funds
Before accepting an outflow headline, check whether it identifies the fund universe, measure, and dates. A credible claim should distinguish MBS-specific data from broader bond categories and make clear whether the number is an actual flow, an estimate, an asset level, a transaction measure, or a stress scenario.
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- Population: Is the figure about banks, interval or tender-offer funds, open-end mutual funds, ETFs, or some combination?
- Scope: Does “MBS” mean agency residential MBS, commercial MBS, or a broader category that also includes other asset-backed bonds?
- Measure: Does it report subscriptions and redemptions, ETF net issuance, transactions, assets held, or investment returns?
- Period and method: Are the observations weekly, monthly, or quarterly? Are they estimates or collected actual flows, and when were they reported?
- Rate-risk context: Is the claim about market-price sensitivity, fund returns, liquidity pressure, or investor behavior? Those are related questions, but not interchangeable evidence.
The Federal Reserve Bank of New York publishes information on agency MBS operations and data; those market-operation materials should likewise not be mistaken for fund-level investor flow data.
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