GNMA Securities In Today’s Market: Seeking Stability and Income As Volatility Rises

A closer look at how GNMA securities performed through the recent COVID-19 market dislocation.

Executive Summary

  • Volatility in equity markets and low U.S. Treasury yields have made GNMA securities a prudent choice for investors looking to add stability to their portfolios.
  • Historically low correlations to equities, a strong track record during periods of monetary policy changes and steady long-term performance underscore their risk mitigation potential.

With volatility now the norm in equity markets and U.S. Treasury yields near historic lows, Government National Mortgage Association securities’ potential to deliver dependable risk mitigation and yield through a multitude of market environments remains strong.

GNMAs’ historically low correlations to U.S. equities (Figure 1), strong track record during active Federal Reserve periods (Figure 2) and steady long-term performance (Figure 3) can help dampen overall portfolio risk.

Figure 1. GNMA Returns During Quarterly Periods in Which Equities Fell by 10% or Greater
Figure 1. GNMA Returns During Quarterly Periods in Which Equities Fell by 10% or Greater

Source: Morningstar, Voya Investment Management. Past performance does not guarantee future results.

Figure 2. GNMAs Have Performed Well During Historical Periods When the U.S. Federal Reserve Raised the Fed Funds Target Overnight Lending Rate — Often Outperforming Most Other Debt Sectors
Figure 2. GNMAs Have Performed Well During Historical Periods When the U.S. Federal Reserve Raised the Fed Funds Target Overnight Lending Rate — Often Outperforming Most Other Debt Sectors

Source: Morningstar, Voya Investment Management.
Periods presented are based on observations of the Federal Funds Target Rate as reported by the Board of Governors of the Federal Reserve System (https://fred.stlouisfed.org/series/DFEDTAR) for periods of time during which short-term interest rates exhibited a persistent rising trend, even though rates may have dropped temporarily during one or more of the periods shown. Past performance does not guarantee future results.

Any reason to change now?

Even with structural changes to the asset class underway, we believe that the historical capacity for GNMAs to deliver dependable risk mitigation across multiple market environments has remained undiminished. Indeed, GNMAs have for decades provided investors with a strong source of steady performance.

Figure 3. For Approximately 40 Years GNMA Rolling 3-Year Returns Have Been Positive 100% of the Time
Figure 3. For Approximately 40 Years GNMA Rolling 3-Year Returns Have Been Positive 100% of the Time
BBgBarc GNMA Index Rolling Returns, Monthly Observations, 1980–1Q20

Source: Morningstar, Voya Investment Management. Past performance does not guarantee future results.

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This information is proprietary and cannot be reproduced or distributed. Certain information may be received from sources Voya Investment Management (“Voya IM”) considers reliable; Voya IM does not represent that such information is accurate or complete. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial data. Actual results, performance or events may differ materially from those in such statements. Any opinions, projections, forecasts and forward looking statements presented herein are valid only as of the date of this document and are subject to change. Nothing contained herein should be construed as (i) an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Voya IM assumes no obligation to update any forward-looking information. All investing involves risks of fluctuating prices and the uncertainties of rates of return and yield inherent in investing. As Interest Rates rise, bond prices fall, reducing the value of a GNMA Security. Investments in asset-backed, Mortgage-Backed or Mortgage-Related Securities, have greater exposure to prepayment and extension risks than investments in other fixed-income securities. Mutual Funds that invest in securities guaranteed by the U.S. Government as to timely payments of interest and principal, are Not Insured or Guaranteed.

Index Disclosures

The S&P 500 Index is a gauge of the U.S. stock market, which includes 500 leading companies in major industries of the U.S. economy. The Bloomberg Barclays U.S. Aggregate Bond Index is composed of U.S. securities in Treasury, Government-Related, Corporate and Securitized sectors that are of investment-grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $250 million. The Bloomberg Barclays U.S. Corporate Bond Index is the component of the Bloomberg Barclays U.S. Aggregate Index that is comprised of U.S. investment grade corporate bonds.

The Bloomberg Barclays U.S. Government/Credit 1–3 Year Bond Index is comprised of U.S. Treasury, Agency and corporate bonds with maturities at least one and not more than three years.

The Bloomberg Barclays U.S. GNMA Index is comprised of U.S. mortgage-backed pass-through securities, which carry the full faith and credit guaranty of the U.S. government through the Government National Mortgage Association (“GNMA” or “Ginnie Mae”). The Credit Suisse Leveraged Loan Index represents tradable, senior secured U.S. dollar-denominated below-investment grade loans. All loans are funded term loans with a tenor of at least one year and are made by issuers domiciled in developed countries.

Disclosures

This commentary has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations, and (6) changes in the policies of governments and/or regulatory authorities. Past performance is no guarantee of future results.