VABS - Riding The Convexity Wave In Securitized Credit
2024-03-29 02:25:00 ET
Summary
- Convexity, which measures interest rate sensitivity and drives the risk and return profiles of fixed income products, is an important concept that investors can utilize to boost total return and manage risk.
- Agency MBS are well known for having negative convexity, due to the embedded prepayment option. However, unique market conditions have created an unusual anomaly.
- We like CRT subordinate bonds that compensate for the credit risk, with high floating rate coupons and premium price.
By Tracy Chen, CFA, CAIA
Convexity, which measures interest rate sensitivity and drives the risk and return profiles of fixed income products, is an important concept that investors can utilize to boost total return and manage risk....
Riding The Convexity Wave In Securitized Credit