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The Handbook of Mortgage-Backed Securities7th Edition$
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Frank J. Fabozzi

Print publication date: 2016

Print ISBN-13: 9780198785774

Published to Oxford Scholarship Online: October 2016

DOI: 10.1093/acprof:oso/9780198785774.001.0001

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A Framework for Determining Relative Value in the Agency MBS Market

A Framework for Determining Relative Value in the Agency MBS Market

Chapter:
(p.758) Chapter 35 A Framework for Determining Relative Value in the Agency MBS Market
Source:
The Handbook of Mortgage-Backed Securities
Author(s):

Mark Fontanilla

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198785774.003.0035

This concluding chapter provides a practical framework for assessing relative value in agency mortgage-based securities (MBS) products given their uniqueness among asset classes in the fixed income world. Relative value analysis is a prevailing but very suitable approach for determining whether the risk/reward proposition of an individual agency MBS related security looks rich, cheap, or at a fair value versus other agency MBS securities, as well as in comparison to typical benchmarks. For agency MBS investments, neither a single risk/reward variable nor a single rate scenario is necessarily enough to assess relative value. It is the analysis of a combination of numerous risk/reward metrics across multiple rate and speed scenarios that provide a robust range of relative value triangulation points.

Keywords:   relative value analysis, agency mortgage-based securities, asset classes, fixed income world, risk/reward proposition, agency MBS investments

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