Mortgage Bonds Explained
The discussion delves into the dynamics of mortgage bonds and how rising interest rates affect refinancing behavior, leading to a unique market scenario. As interest rates drop, the risk of negative convexity becomes apparent, highlighting why investors demand a spread between mortgage and treasury bonds. The conversation also explores the various players in the mortgage bond market, emphasizing banks, financial institutions, and money managers drawn to these assets for their favorable capital treatment.In this clip
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