Investors are rethinking their relative value framework for looking at the mortgage sector after Asian net purchases of mortgages have exceeded banks and agencies in all but one year since 2000, according to JPMorgan Securities analysts. While some investors are looking for "yield targets" where bank demand will resurface, others are exploring dollar/yen levels at which mortgages are more attractive to Asian buyers.

At the foundation of this currency-based approach is the notion that when the dollar is cheap versus the yen, Asian buyers should buy mortgages as they would benefit from the currency appreciation as well as the carry, and possibly even mortgage tightening as well. When analysts set out to explore this concept, however, the results were surprising.

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