Why mortgage bonds are set to deteriorate, and possibly hit the whole market, according to this Wall Street expert

A flattening Treasury yield curve is creating headwinds for mortgage-backed securities, according to Wall Street strategist Harley Bassman. Mortgage bonds typically carry duration risk that behaves differently from Treasuries, and when the gap between short- and long-term yields narrows, the hedging and spread dynamics that investors rely on can become less predictable. That makes the sector more sensitive to shifts in rate expectations.

The concern extends beyond mortgages themselves. MBS are widely held by banks, insurers, and funds, so sustained weakness in the asset class can ripple into broader fixed-income markets and affect liquidity conditions more generally. Bassman's warning is a reminder that mortgage bonds are not an isolated corner of the market — they are deeply woven into the financial system.

For observers, the key signals to watch are the shape of the yield curve, the spread between mortgage-backed securities and Treasuries, and how major holders adjust their portfolios. None of these alone predicts market direction, but together they offer a window into how pressure in housing finance could transmit to wider markets.