raising yields means lower incentives to re-finance mortgages which reduces the amount of pre-payments
Illya Gerasymchuk
raising yields means lower incentives to re-finance mortgages which reduces the amount of pre-payments
thus, the duration increases when yields are raising - so even a higher price decrease
optionality/convexity premium in mortgage backed securities is interesting
when market yields fall the price should rise, but since borrowers take advantage of lower mortgage rates to make early payments - the price does not raise as much, due to lowered duration
