Signal is more important than scale – Goldman Sachs interprets "Trump-style QE"

After Trump announced via social media that he would instruct Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities (MBS) to lower mortgage rates, the mortgage market quickly reacted.

Goldman Sachs pointed out in its latest trading desk report that the short-term funding impact of this move may be limited, but the policy signal it releases is having a substantial impact on the valuation framework of the U.S. MBS market.

Goldman Sachs summarized this change in one sentence—“Signal matters more than the flow.” In their view, this is not a traditional form of quantitative easing, but rather a “quasi-QE” led by the executive branch, targeting the housing market, and its impact should be understood not just in terms of scale, but from the perspective of policy paradigm change.

I. From “QE Scale” to “Policy Paradigm”: Administrative Power Intervening in Interest Rate Formation Mechanism

Looking solely at the scale, $200 billion is not enough to shake the U.S. MBS market, which is worth several trillion dollars. Historically, the scale of MBS purchases during the Fed's QE was far greater than this.

However, Goldman Sachs emphasizes that what truly matters is not how much is bought, but who is buying, why they are buying, and whether this behavior could become the norm.

Unlike previous QEs led by the Fed and implemented through monetary policy frameworks, the notable characteristics of this action are:

• Not a central bank decision

• Not justified by inflation or employment

• Instead, the executive branch is directly intervening in housing financing costs through government-sponsored enterprises (GSEs)

Goldman Sachs' Delta-One trading head characterized it as:

“QE executed by the executive branch, targeting housing.”

This means that the U.S. policy toolbox now includes a way to bypass traditional monetary policy channels and directly influence asset pricing. For the market, this represents a structural change that needs to be re-priced.

II. The Market's First Reaction: Professional Funds Quickly Bet on “Policy Pricing”

From the market performance, investors clearly did not view this statement as “noise.”

Within an hour of Trump's statement:

• 30-year TBA MBS with a coupon of 5% or below
  • OAS quickly narrowed by about 10bp
• High coupon MBS
  • Narrowed more moderately, by about 5bp

This reaction itself reflects the market's consensus judgment:

If the policy is implemented, GSE purchases will mainly focus on the current coupon range, rather than covering all coupons.

From the trading structure:

• The main buying force comes from hedge funds

• Asset management institutions have limited participation and a more cautious attitude

• Transactions are not fully sufficient, with inquiries clearly outnumbering actual trades Goldman Sachs pointed out that the characteristic of "gap adjustments and insufficient trading" often occurs in the stage where the valuation system changes, but the market has not yet formed a new equilibrium.

III. Goldman Sachs' Original Judgment: MBS Valuation is Tight, Space Mainly Comes from Carry

Prior to this statement, Goldman Sachs had a relatively neutral overall view on Agency MBS.

Its core judgments include:

• MBS has significantly outperformed other interest rate assets by 2025

• OAS is overall at or even below the long-term average

• There is limited space for further tightening

From a strategic perspective, Goldman Sachs prefers to:

• Avoid chasing high coupon and high price assets

• Favor coupon structures slightly below the belly

• Obtain stable carry through the "down-in-coupon" method

The implicit premise of this framework is:

• Interest rate volatility remains low

• Refinancing risks exist but will not erupt in concentration

• MBS spreads will show more "range-bound fluctuations"

However, Trump's statements have shaken these assumptions.

IV. The Real Impact: Refinancing Risks Actively Triggered by Policy

Goldman Sachs believes that the biggest impact of this policy signal lies not in the spreads, but in the function of refinancing behavior has changed.

Current U.S. mortgage rates have been pushed back to near the lowest point since 2023 (around 6.05%). If the policy goal is to "clearly lower borrowing costs," then:

• Refinancing activity will inevitably accelerate again

• The prepayment risk that was originally marginal may turn into a baseline scenario

This is precisely the risk that Goldman Sachs has been most wary of at the current valuation level.

The research report clearly points out:

• In-the-money coupons will face significant carry destruction

• The yield structure of high coupon, high price MBS will deteriorate rapidly

At the same time, the market needs to answer a key question:

In the case where refinancing leads to front-loaded supply, is the GSE's purchasing pace sufficient to absorb the new supply?

If the answer is negative, the tightening path of MBS spreads may not be linear, but accompanied by significant volatility.

V. Structural Impact: Who Benefits, Who is Pressured?

Based on the above logic, Goldman Sachs has given clear relative judgments on different MBS structures:

Assets Under Relative Pressure:

• High coupon, high dollar price MBS

• Especially those with large floating scales held by trading funds

• Facing dual pressures of refinancing and duration contraction

Directions that Benefit Relatively:

• High-quality specified pools that can partially avoid extreme prepayment

• 30-year 4.5% coupon MBS, priced in the mid to high $90 range

• Coupon structures below the production bonds become the new relatively "safe carry zone" Therefore, Goldman Sachs currently prefers to:

Sell high-yield assets and hold long positions below the main production bonds.

VI. Why is "signal more important than capital volume"?

In Goldman Sachs' view, the long-term impact of this event far exceeds the $200 billion itself.

Once the market accepts this logic:

• The executive branch can, when necessary,

• Directly intervene in specific financing rates through GSEs

Then, a layer of policy asymmetry premium will be permanently added to the risk pricing of MBS.

This is precisely what Goldman Sachs refers to as "valuation phase shift"—not merely a tightening of spreads, but a change in the pricing anchor.

How to price the "hand of the administration"?

Goldman Sachs does not interpret this policy as a "mindless positive" trading opportunity. On the contrary, it is a highly restrained research report that emphasizes structure and risk redistribution.

In the short term, MBS spreads may still have 5–10 basis points of tightening space; however, the medium-term trend will depend on the interplay between refinancing intensity, supply rhythm, and policy execution capability.

More importantly, the market is being forced to rethink a question:

When administrative power begins to directly intervene in the interest rate formation mechanism, which assets' risks are truly "priceable"?

——This may be the most concerning aspect of this Goldman Sachs report for investors