These real estate investment trusts are expected to buy about $30 billion of mortgage debt securities on a net basis this year, according to Barclays Plc. This alone would be the most in at least six years, and Goldman Sachs Group Inc. pegs the tally even higher at about $50 billion. 

The buying is fueled in part by a $3.6 billion infusion that REITs got from selling new shares. That's also the most since the pre-Covid era, according to data compiled by Bloomberg. The total includes $761 million raised in the second quarter by Annaly Capital Management Inc., the biggest listed US mortgage REIT. The firms typically add a layer of borrowed money, which can add billions of dollars of purchasing power.

"Investors are realizing that the underlying asset class is unusually cheap," said Peter Federico, chief executive at AGNC Investment Corp., the No. 2 mortgage REIT, which raised $799 million via common stock sales during the quarter. "Following the market dislocation associated with the 'liberation day' announcement, agency MBS didn't recover as much as other assets," Federico said in an interview. 

In April after President Donald Trump's tariff announcements, spreads on Fannie Mae mortgage bonds backed by new 30-year loans blew out to as much as 164 basis points compared with a benchmark blend of five- and 10-year Treasuries. That's the widest in 17 months, a Bloomberg index shows. Now, amid demand from investors like mortgage REITs, coupon spreads are below 125 basis points.

Mortgage-backed securities are created by financial firms that collect hundreds of home loans and package them into a single bond. This new security typically gets sold to investment funds and pensions seeking a stream of income with relatively low risk. The bulk of MBS issues are backed by guarantees from Fannie Mae and Freddie Mac, the two big federally chartered mortgage agencies. 

Issuance rose to nearly $842 billion so far this year from $741 billion for the same period in 2024, according to the Securities Industry and Financial Markets Association. More than $8 trillion of mortgage bonds are outstanding. Among the big buyers earlier this year were Pacific Investment Management Co. and Allspring Global Investments, betting that the wide spreads will lead to returns that beat relatively pricey high-grade corporate bonds. While REITs have been stepping up purchases, banks and foreign investors — traditionally are among the biggest MBS holders — have been notably less active. 

The nation's more than 30 mortgage REITs provide individual investors with access to MBS, offering a combination of capital gains and dividend income. It hasn't been an especially lucrative strategy for the past decade, with annualized returns for the industry's benchmark index averaging about 6% including dividends. The stocks are still deeply depressed from the highs set before the 2008 subprime mortgage crisis.

But total returns of more than 20% in 2025 have attracted attention, and retail investors probably have noticed the double-digit yields. By contrast, government-backed mortgage bonds alone have gained just 6.8% this year including interest, according to Bloomberg index data, compared with 6.7% for corporate bonds and 5.5% for Treasuries. 

Equity analysts who follow Annaly and AGNC are almost uniformly bullish, reflecting the overall optimism about the sector. The price to book ratio of the Dow Jones US Mortgage REITs Index hovers at about 1.14, a near-record level seen perhaps only three times since 2013. The generous premium means REITs can sell stock, put the money to work and boost earnings while also boosting the company's net worth. 

Another boost to the outlook comes from the potential for Federal Reserve interest-rate cuts. Mortgage bonds perform best when investors grow more confident about where yields are headed, and Fed rate cuts could provide more certainty about the bond market's direction. Demand from other big investors, including pension funds and foreign accounts, could also pick up.

Read More: Powell Rallies Fed Colleagues on Rate Cut Amid Economic, Political Risks 

"The ideal environment for REITs is when mortgage spreads to benchmark rates are wide and stable," said AGNC's Federico.  "Spreads to benchmark rates have tightened, but are still attractive, and the macro backdrop is improving for this asset class given the expected shift to a more positive monetary policy." 

Spreads Tighten

Some of that optimism is already reflected in market prices. The Fannie Mae 30-year current-coupon spread to the 5/10-year blend tightened to as low as 116 basis points earlier this week, the narrowest since Aug. 16, 2022, according to Bloomberg-compiled data.

"The real bull case for MBS is that a combination of regulatory reform and further easing in monetary policy will materially increase demand from banks and Asian accounts," which would tighten spreads, said Ken Adler, Annaly's head of mortgage servicing rights, during the firm's July earnings call. "We think the odds of that happening in the second half of the year are quite good." 

Annaly Chief Executive Officer David Finkelstein added that the potential privatization of government-controlled Fannie and Freddie "will preserve the implicit guarantee and aim to tighten MBS spreads, removing a significant market concern." Annaly declined to comment for this article.

Of the total mortgage bonds outstanding, banks held about $2.7 trillion, the Federal Reserve owned $2.1 trillion, and foreigners held about $1.3 trillion, according to Fed data. 

Some analysts say the risks inherent in mortgage investing could deter REITs from raising even more from equity sales. As the post-pandemic era demonstrated, a leveraged mortgage REIT can lose a lot of money in a short time when spreads become volatile, said Michael Khankin, who leads residential MBS research at Barclays. And unlike hedge funds, the pay structure for REIT managers doesn't reward them for taking massive risks, he said.

"However, so long as mortgages continue to do reasonably well versus rates, and equity valuations can remain rich, expect REITs to be buying more and more," Khankin said.