@EconstratPB This is the key. There may be LDI bid for a true 50yr cash flow. But the neg convexity on 50yr mtges will be awful. These borrowers will refi at first opportunity to lower rates or shorter terms. So I don’t know who the natural buyers of 50yr mtges are
@brandonjcarl And who are the natural buyers? Unlike a 50yr or century bond, the prepay option and neg convexity won't be appealing to the LDI bid given cashflow uncertainty; borrowers will be very efficient in refinancing into lower rates and/or shorter terms.
@EconstratPB Seems like a terrible idea. Lower monthly payment but also slower pace in building equity. And investors will hate it because of the prepay option and neg convexity you mentioned (not actual 50yr cashflow, no LDI bid).
And why stop at 50? Why not 100 or perpetual IO then?
@Fullcarry Agency MBS traded poorly too. 5-6bp wider vs IG “only” 2 bp wider. Heavy money manager selling esp near end of day, consistent with your color
@MacrostratPB If fintwit is right (goods trade deficit divided by their exports = voodoo math), then it makes me really pessimistic about U.S. outlook, both outright and vs RoW. Banana republic stuff