With the economy picking up and the Federal Reserve expected to change its bias, bank movement from mortgages to traditional business lending could cause considerable underperformance in MBS.

When this happens, there's usually a negative correlation between banks' MBS holdings and commercial loans. As described in research from Countrywide Securities last week, this negative correlation is caused by the increase in Commercial and Industrial (C&I) loan demand and the decrease in the attractiveness of MBS via Fed tightening.

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