By the Numbers
MBS: Trading MBS below par
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The shift to higher mortgage rates this year has changed the nature of MBS prepayments. Mortgage rates have declined for more than 40 years with any pause or increase short and followed by another drop to lower rates. Each move lower unleashed a new refinance wave in MBS. But today the average MBS is trading around $90-00, and few borrowers can refinance into a lower rate. Investors have started to search for faster prepayment speeds to provide extension protection. Housing turnover, interest rates and home equity all promise to play key parts in determining relative prepayment speeds and relative value across MBS. A slide presentation on Trading MBS below par is here.
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