March 8th, 2007, 5:27 pm
Thanks SC, have a few qns to follow up --Flight to quality..--> Slightly Agree. But does the swap rate necessarily move the other way in this scenario? Is it's move predictible? The last week for instance, the swap rates moved down by 10bps. (The net was still a spread increase)Corporate issuance..--> Agree. Could you explain "hedging the pipeline". Does this mean doing a recvr to effectively pay LIBOR + x? So then spreads tighten due to hedging demand on the swap rate?Mortgage hedging..--> Slightly Disagree with reason. Why would they not just be buying recvr swaptions instead? This would cover the neg convexity as well as provide +ve duration. This would increase the vols AND cause swap rates to fall, and thus spreads tighten.
Last edited by
Advaita on March 7th, 2007, 11:00 pm, edited 1 time in total.