How to hedge mortgage bond

DFT · March 9th, 2011, 2:39 pm

Anyone has idea which instrument I should choose to hedge some mortgage bonds, for example 30 yr MBS, if I have 10 yr swaps and 10 yr Treasury futures? What's the pros and cons and how can I quantify these pros and cons? Thanks!

DavidJN · March 10th, 2011, 1:40 pm

Prepayment assumptions and modeling have a lot to do in assessing the risk of these things so you might want to touch upon that when considering potential hedge instruments.