Wells Fargo: MBS Extension Risk ‘Far More Severe’ Than Models Suggest

This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.
The pony people (aka Wells Fargo) has just issued a mortgage-backed securities alert. (Bloomberg) – Extension risk in mortgages is ‘far more severe’ than production coupon models suggest, Wells Fargo managing director on the mortgage trading desk Kevin Jackson wrote in a client note.
Investors need to ask themselves how they feel ‘about current compensation for extension risk’
Interest rates moving higher make it ‘far more difficult’ to model and assess turnover, first time borrower demand and trade up/trade down propensity

This post was published at Wall Street Examiner on November 14, 2016.