RT Journal Article
SR Electronic
T1 Does Mortgage Hedging Amplify Movements in Long-Term Interest Rates?
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 7
OP 17
DO 10.3905/jfi.2003.319356
VO 13
IS 3
A1 Roberto Perli
A1 Brian Sack
YR 2003
UL https://pm-research.com/content/13/3/7.abstract
AB The growth of the mortgage market in recent years raises the question of what effects, if any, the hedging of mortgage portfolios has on the behavior of long-term interest rates. The evidence here is that the ten-year swap rate implied by swaptions becomes more volatile when the prepayment risk of outstanding mortgages increases—most likely because investors expect the hedging of prepayment risk to amplify future interest rate movements. These amplification effects can be considerable, but they are generally expected to persist for only several months.