However, if the trade moves against the credit seller, the underlying yield imposes negative convexity. In simple terms, the credit seller ends up owing money at a non-linear rate the more the ...

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The discussion hits on the negative convexity profile for the asset class, prepayment impacts, stagflation scenarios, utilizing machine learning models, Fannie and Freddie going private and more.

Investors also hedge against negative MBS convexity by buying so-called "receivers" in the swaptions market, in which the buyer pays a premium for the right to receive a fixed rate on a swap.

Convexity hedging was evident recently in the tightening spread between a 10-year interest rate swap and the 10-year Treasury yield. Tighter swap spreads meant that the differential between the two ...

Convexity hedging was evident recently in the tightening spread between a 10-year interest rate swap and the 10-year Treasury yield. Tighter swap spreads meant that the differential between the two ...