Morgan Stanley Fixed-Mid-Year Outlook 2024 Global Securitized Products Mid-Year ...-108467811.pdf

GlobalSecuritizedProductsMid-YearOutlook:NoSurprisesMORGANSTANLEY&CO.LLCJayBacow–Co-HeadofSecuritizedProductsResearch|StrategistJamesEgan–Co-HeadofSecuritizedProductsResearch|StrategistShikharAgarwal–USResidentialCredit&HousingStrategy|StrategistCatherineLiu–USCMBSStrategy|StrategistGavinZhu–USCLOStrategy|StrategistHeatherBerger–USABS&CLOStrategy|StrategistJanieXue–AgencyMBSStrategy|StrategistMorganStanleydoesandseekstodobusinesswithcompaniescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofMorganStanleyResearch.InvestorsshouldconsiderMorganStanleyResearchasonlyasinglefactorinmakingtheirinvestmentdecision.Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.+=Analystsemployedbynon-U.S.affiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoFINRArestrictionsoncommunicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.MORGANSTANLEY&CO.INTERNATIONALPLC+VasundharaGoel–HeadofEuropeanSecuritizedResearch|StrategistMORGANSTANLEYMUFGSECURITIESCO.,LTD+ZuriZhao–AgencyMBS&ESGStrategy|StrategistMORGANSTANLEYRESEARCHGlobalMay31,202412:00PMGMTofthislineofthisline2GlobalSecuritizedProductsMid-YearOutlook:NoSurprises2Q25SpreadandExcessReturnForecastsSource:Bloomberg,YieldBook,TRACE,CMA,Finsight,Markit,MorganStanleyResearchforecasts;dataasofMay14,2024.USHousing:GrindingOutGainsJimEganStrategistCo-HeadofUSSecuritizedProductsResearchofthislineofthisline4HousingAffordabilityStretchedbutImproving…butitwillbeimprovingatarateonlyseenahandfuloftimesoverthepast30+yearsWhileweexpectmortgageratestocomedown,housingaffordabilitywillremainunderpressure…10%15%20%25%30%35%Mar-92Oct-93May-95Dec-96Jul-98Feb-00Sep-01Apr-03Nov-04Jun-06Jan-08Aug-09Mar-11Oct-12May-14Dec-15Jul-17Feb-19Sep-20Apr-22Nov-23USHousingAffordabiltyPaymenttoIncomeAffordability@8%Affordability@6%Affordability@5%-40%-30%-20%-10%0%10%20%30%40%50%60%70%Mar-93Jul-94Nov-95Mar-97Jul-98Nov-99Mar-01Jul-02Nov-03Mar-05Jul-06Nov-07Mar-09Jul-10Nov-11Mar-13Jul-14Nov-15Mar-17Jul-18Nov-19Mar-21Jul-22Nov-23YoY%ChangeinAffordabilityForecastYoYImprovementinAffordabilityNext12MonthsSource:NAR,FreddieMac,USCensusBureau,MorganStanleyResearchforecastsofthislineofthisline5SupplyRemainsTightbutHasBegunEasing-4%-4%2%3%7%11%9%8%7%7%8%13%16%14%6%0%-6%-11%-13%-13%-9%-6%0%0%3%8%11%15%15%10%5%-5%10%15%20%YoY%ChangeTotalHomesAvailableforSale1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%1983-Q21984-Q41986-Q21987-Q41989-Q21990-Q41992-Q21993-Q41995-Q21996-Q41998-Q21999-Q42001-Q22002-Q42004-Q22005-Q42007-Q22008-Q42010-Q22011-Q42013-Q22014-Q42016-Q22017-Q42019-Q22020-Q42022-Q22023-Q4Inventoryas%ofOwnershipStockCurrentLevelSource:NAR,USCensusBureau,MorganStanleyResearch…butitremainsclosetohistoricallylowlevelsAsratescomedown,for-saleinventoryhasbeguntoclimb…AgencyMBS:CarryandChillJayBacowStrategistCo-HeadofUSSecuritizedProductsResearchofthislineoft