As the housing market is rapidly changing and the vast majority of coupons in the mortgage market are trading at a discount, analysts at Barclays Capital explored the factors driving discount speeds in a quest to find ways to get protection from extension risk.

"We think that higher mortgage rates and a weakening housing market are likely to reshape the prepayment profile of many discount pools," Barclays analysts wrote. "In the new environment, seasoning ramps are likely to extend materially...many pools that have provided excellent extension protection in the past are unlikely to continue to do so."

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