This website use cookies and similar technologies to improve the site and to provide customised content and advertising. By using this site, you agree to this use. To learn more, including how to change your cookie settings, please view our Cookie Policy
Xmas Legs Small Present Present
Pocketmags Digital Magazines
GB
Pocketmags Digital Magazines
   You are currently viewing the United Kingdom version of the site.
Would you like to switch to your local site?
Digital Subscriptions > The Hedge Fund Journal > Issue 131 – Apr 2018 > Sector in Brief

Sector in Brief

MBS and Securitised Credit

COMMENTARY

The past few months have seen asset managers encouraging investors to look at securitised credit (MBS / ABS). Their pitch in a nutshell: diversification from conventional fixed income, healthy returns over the past 15 years (GFC aside), value in an “unloved” sector while traditional bonds are rich, and a complexity premium given that the instruments are famously difficult to value. Investors are told that pre-‘GFC’ problems in MBS have been addressed: reliance on credit ratings has decreased with more loan-level analysis and third-party due diligence; misaglined compensation practices in mortgage origination have been tackled by riskretention rules; loans are underwritten to a more conservative standard.

Yet there are notable headwinds in play. The Federal Reserve is beginning to unwind its Agency MBS purchases. Valuations are tight. The level of issuance in non-Agency RMBS remains low thanks to tighter lending standards and banks’ preference for agency loans in their portfolios, although shortage of supply can be positive for pricing. Interest rate volatility can be detrimental to for MBS performance, although the key relationship – that between prepayment risk and rates – is exceptionally hard to model.

READ MORE
Purchase options below
Find the complete article and many more in this issue of The Hedge Fund Journal - Issue 131 – Apr 2018
If you own the issue, Login to read the full article now.
Single Issue - Issue 131 – Apr 2018
£119.99
Or 11999 points
6 Month Digital Subscription
Only £ 120.00 per issue
£599.99
Or 59999 points

View Issues

About The Hedge Fund Journal

Informing the Hedge Fund Community. With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry.