'Signal Matters More Than The Flow': What Goldman Thinks About Trump's QE

As we detailed here overnight, President Trump has proclaimed that Fannie and Freddie should be buying $200bn of mortgages, explicitly to push mortgage rates lower.  

Near-term impact might be relatively modest for MBS spread compression, but the signal matters more than the flow.

As Goldman's Delta-One desk-head confirmed our analysis, this is effectively housing-targeted QE executed via the executive.

Here's what Goldman's mortgage flow desk is thinking...

What Happened:

Today at 4:25pm, President Trump announced via Truth Social that he would be instructing the GSEs to purchase $200 billion in Mortgage Bonds, for the purpose of driving down mortgage rates and borrowing costs for home buyers.

The reaction in the TBA market (description here if unfamiliar) was immediate, with 30yr 5s and lower tightening by about 10bps in OAS terms between 4pm and 5pm.

Premium coupon mortgages tightened more modestly at about 5bps. Hedge funds were the main buyers into the gap move, though we saw some asset manager demand as well. No material sellers into the tightening. In addition to outright and basis buying (or attempts to buy, the gap was pretty immediate), we also saw interest for hedge funds to go down in coupon, mainly via selling 5.5s-6.5s vs 4.5s on the stack.

A majority of inquiries did not end up trading, given the gappiness of the move and unwillingness of dealers / others to take the other side of this risk.

What Goldman is thinking:

Prior to today’s announcement, the desk’s views were relatively neutral on the broader Agency Mortgage complex, which saw considerable outperformance through 2025. Production coupons (mainly FN 5s) and premium coupons (FN 5.5s and higher) were looking vulnerable, with primary mortgage rates flirting with the 2025 lows again, and large 5.5 & 6 floats susceptible to heavy refinancing activity. OASs have been broadly trading through long term averages across the coupon stack, though the same can be said for credit spreads and both realized and implied volatilities. Where we wanted to be long basis was in the belly, just south of production, and overlayed with some down-in-coupon expressions. While significant spread tightening seemed difficult, carry was strong, and with expectations of a steeper curve and low vols, it seemed that mortgage spreads could be relatively well contained.

Today’s announcement shocks some of these views.

OAS valuations have phase shifted even tighter, though it’s unclear that they will necessarily stop here. A program to lower the mortgage rate would likely be focused in current coupon, with a focus on 4.5s through 5.5s, and in a vacuum I would now expect these production coupons to ultimately trade richest on the stack. Where I struggle with this view, at least locally, is that we’ve likely now moved the mortgage rate back to its lows since 2023, very close to 6.05%. This should help spur the refinancing activity the administration is targeting, and that we’ve been cautious about at these valuations. If this gross supply becomes front-loaded, it’s not clear that asset managers will actively reinvest paydowns into new production at such tight spreads. Whether or not GSEs can ramp up their purchases into increased supply, so early from the announcement, may determine if mortgages can continue to leg tighter in the short term, or if it will be a longer grind.

What does seem clear, however, is that in-the-money coupons can start to see significant carry destruction as prepayments ramp back up.

High dollar price MBS, particularly those with larger floats being funded by the dealer & hedge fund communities, I would expect to underperform into this move. High quality specified pool stories for in the money collateral should benefit. Further down the stack, I would expect 30yr 4.5s to benefit as investors look to shed higher dollar price MBS. 5s have already been added from the servicer/deriv hedger community back in September’s rally, and 4.5s could see similar outperformance from convexity needs if the mortgage rate can sustain a march lower. We saw some interest to fade 101+ dollar price MBS for mid/high 90s dollar price MBS immediately after the announcement, and this trend is likely to continue.

There is still a lot to learn about how this program will ultimately work, and a wide range of possible outcomes still.

We’ve tightened ~10bps so far, and another 5-10bps seems likely, though I expect some volatility in where that lands in 5s and higher, especially locally. I like selling up-in-coupon and running longs just below the main production coupon, which here are FN 5s.

If you haven’t already, we highly recommend reading Arun Manohar’s 2026 Mortgage Outlook, which can be found here at our new MarktDesk.ai portal. While it was written prior to today’s announcement the broader themes and analysis hold. 

Finally, Goldman expects the Davos speech in coming weeks to lean into demand side housing support: potentially changes to 401k tax treatment and subsidies for first-time buyers.

US housing remains bifurcated… acute supply shortages in the Northeast corridor versus surplus in parts of the Sunbelt. It’s not easily fixed, but affordability relief may help at the margin.

In the pre-market, homebuilders and lenders are up notably.

More in the full Goldman S&T note available to pro subs.