SAN FRANCISCO - With the mortgage market experiencing volatility right now, hedging strategies become important in portfolio management. At the Mortgage Bankers Association Secondary Market Conference 2005 held here last week, participants at the Pipeline Hedging Strategies panel discussed the market issues making it necessary to find efficient ways to hedge.

Volatility is a key issue, particularly in the MBS market. Walter Schmidt, manager of mortgage research at FTN Financial, said that uncertainty regarding the timing of Federal Reserve rate hikes is causing a lot of volatility in the MBS market, specifically at the front-end, thus affecting the hybrid ARM sector. He said that the themes of the market include: making hedge ratios a little longer, the growing ARM share, and the increasing importance of specified pay-ups - he emphasized that if investors are merely selling into TBAs, they "are leaving money on the table."

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