The weakness in the housing sector has the impact of reducing cash-out refinancings resulting from low or negative home price appreciation as well as increasing extension risk.

With these risks, Street analysts have been recommending trades that benefit from housing weakness. For instance, Deutsche Bank analysts recommended several trades that carry investors through the current housing slump. However, Deutsche analysts still suggested a MBS underweight as a result of the sector weakening in the event of a rally and selloff in rates. Deutsche analysts also considered the ongoing supply/demand imbalance.

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