How Are Mortgage-Backed Securities Hedged?
MBS cannot be hedged directly, but can be indirectly hedged by conducting refinancing for the constituent mortgages when interest rates fall to incur a lower interest rate for those mortgages. This lower interest rate will ultimately lead to lower financing costs moving forward. Refinancing in this manner allows originators of MBS to hedge their mortgage pipelines against interest rates shifts.
- What Is a Mortgage-Backed Security (MBS)?
- What Are the Advantages of Investing in MBS?
- Should I Invest in an MBS Fund Instead of Individual Mortgage-Backed Securities?
- How Are Mortgage-Backed Securities Different from Other Fixed Income Securities?
- What Are Residential Mortgage-Backed Securities (RMBS)?
- What Are Some Examples of Mortgage-Backed Securities?
- What Are Collateralized Debt Obligations (CDOs)?
- What Is the Difference between Collateralized Debt Obligations (CDOs) and Mortgage-Backed Securities (MBS)?