Agency backed mortgage backed securities (MBSs) have interest rates above Treasury rates because MBSs

Expert Solution

Agency backed mortgage backed securities (MBSs) have interest rates above Treasury rates because MBSs:

MBSs are pool of various securities (collateralized asset) which are subject to various factors unlike treasury securities.
MBSs carry risk of negative convexity and carry reinvestment risk.
MBSs are backed by the government sponsored agencies like FNMA and GNMA. Therefore, they offer more returns.
MBSsreturns are also dependent upon prepayments and refinancing.

jeff jeffy answered 2 years ago

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