Decoding Bond Math: Why Seasoned MBS Win in Today’s Market
- Jonathan Poyer
- 7 minutes ago
- 1 min read
Garrett Smith and Brian Loo talk about seasoned MBS and the math behind the bonds
The Equity Cushion: Unlike new issues, 10- to 15-year-old seasoned mortgage bonds feature low 30–40% LTVs, drastically reducing default risk.
Discount Advantage: Buying legacy MBS at ~75 cents on the dollar turns prepayment risk into a win, capturing fast capital appreciation if rate cuts trigger refinancing.
Rebounding Cash Flow: Rate cuts are widening the "excess spread," turning loss-recovery mechanisms back on and pushing select bonds above par.
Positive Convexity: While past hikes extended MBS duration and hurt prices, falling rates are now unleashing positive convexity to drive powerful bond rallies.
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