Mustafa Chowdhury on Mortgage Risks, Fed Shocks and Derivatives
Macro Hive Conversations With Bilal Hafeez
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How Do You Hed a Mortgage Portfolio?
Freddie Mac was a huge short position in a hugely negative convex bond position. A mortgage can also refinance in a matter of months since after it's originated and you get a duration of like four months. The typical GSE on a was about 40 to one leverage on a book value basis. And sometimes the market leverage could be 100 to one. You got a massively leveraged portfolio that has negative convexity.
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