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Is Convexity An Issue?
Given the tight ranges in mortgage coupons and the fact that interest rates are moving through the heart of these ranges, the current 50 basis point rise in yields is having a bigger impact on the duration of the mortgage index than we saw with similar 100+ basis point rises in interest rates just a year ago. This is resulting in one the biggest convexity trading opportunities on the bond market in the last 3.5 years.