Voya GNMA Income Fund Quarterly Commentary - 2Q26

• The U.S. Federal Reserve held rates steady throughout the quarter, marking its fourth consecutive pause. The June dot plot showed the median year-end 2026 projection at 3.75%, implying no change from the current rate as the central tendency, despite deeply divided distribution of individual dots. Fed’s mortgage-backed securities (MBS) holdings declined by ~$50 billion during the quarter. 
• Interest rates flattened with 2-year rate up 37 basis points (bp) and 30-year rate up only 5 bp during the quarter. The 30-yr fixed mortgage rate increased roughly 11 bp to 6.49%. 
• GNMA MBS outperformed Treasury hedges by over 30 bp into positive geopolitical macros, opportunistic government-sponsored enterprises (GSE) buying, and limited net MBS issuance during the quarter. Higher coupons outperformed lower coupons with 6s realizing in excess of 100 bp of outperformance. 
• Housing market activity remained challenged. Existing home sales showed a late-quarter pulse, but new home sales and construction activity deteriorated. Affordability constraints, rate lock-in effect and macro uncertainty have kept turnover low. 
• Voya GNMA Income Fund outperformed the GNMA benchmark on a net asset value (NAV) basis.

Voya GNMA Income Fund outperformed the benchmark on a NAV basis for the quarter. During the quarter, outperformance was mostly attributable to collateralized mortgage obligation (CMOs). Modest duration overweight detracted from performance.

Agency mortgage-backed securities (MBS) continued to outperform in the second quarter, supported by a brief rate rally following the April ceasefire and continued technical tailwinds from weak net supply. 10-year Treasury rate ended the quarter at 4.47% and 2yr/10yr flattened by 22 bp. Housing activities remained challenged despite the seasonal spring selling season as elevated mortgage rates continued to weigh on refinancing and purchase activity. Inflation, as measured by Consumer Price Index (CPI), re-accelerated and marginally exceeded the median market expectations, reinforcing the Fed’s extended pause under Chair Warsh. 

From a technical perspective, mortgage performance this quarter was primarily driven by constrained net supply, which offset moderate and uneven investor demand, while elevated rate volatility under Chair Warsh limited broader spread tightening. GSE support remained in place, although purchases appeared to be more opportunistic than programmatic. Passive ETF inflows remained resilient, while large bank participation and oversea demand were mixed. 

From a fundamental perspective, prepayment activity remained subdued as elevated mortgage rates continued to reinforce borrower lock-in, while affordability challenges continued to constrain housing turnover. Although purchase activity showed its typical seasonal spring pickup, mortgage rates hovering around 6.5% continued to suppress refinancing activity, keeping overall prepayment and origination activity subdued. 

Housing price appreciation moderated during the quarter, with Case-Shiller 20-City Home Price Index declining 0.04% on a seasonally adjusted basis in April. Overall MBS supply continued to be docile for both gross and net issuance, due to a fading wave of refinancing activity and structurally lower securitization rates. The limited supply backdrop provided a key technical support for spreads, although continued Fed MBS runoff kept investor absorption needs elevated and limited further spread compression. Ginnie’s domination continued among the issuers; however, the GNMA fund managers will continue to monitor the technical factors impacting MBS supply.

Voya GNMA Income Fund continues to be underweight GNMA collateral relative to the benchmark where performance is determined by technical demand factors. The Fund remains overweight off-benchmark GNMA and agency-backed CMOs which offer greater longer-term value with higher spreads relative to generic collateral, especially on an option-adjusted basis. Additionally, the Fund maintains a preference for higher coupon collateral such as 5s to 6s.