Deutsche Bank Securities analysts expect nominal spreads to be very volatile as a result of Greek debt issues, and to bounce in the opposite direction to rates, they said in research released this week. 

They anticipate, however, that OAS spreads on MBS will likely continue to tighten "because volatility in swap rates should continue outpacing volatility in mortgage rates to borrowers."

Under this outlook, they suggest investors who have no explicit view of volatility to consider swaptions and other interest rate derivatives products to hedge some of the volatility risk.

To determine which coupon was the most attractive, analysts computed the risk-adjusted carry along the stack for both 30- and 15-year passthroughs. In their example, analysts used Gold dollar rolls versus FNMAs since Freddie Mac is complete in its major delinquency buyouts, while Fannie Mae's are still in progress.

After adjusting for duration, convexity and vega, analysts found 30-year 5s to be the most attractive coupon with a net carry of two plus ticks. They also liked 15-year 4.5s as the net carry was nearly the same.

Deutsche analysts noted 6% and 6.5% coupons offered a higher net carry because of lower volatility exposure, although analysts said they did not favor these coupons due to prepayment and buyout risks and lower liquidity versus 5s.

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