Merrill analyses Agency debt/MBS relative value

Noting that, on occasion, fixed-income investors seeking to underweight MBS tend to look at callable agency debt as an alternative, Merrill Lynch agency debt and MBS strategists have created a new report that studies relative value between the most liquid MBS coupons and agency bullets. In the initial report, the analysts focused on passthroughs versus agency bullets, highlighting three different ways to track relative value between 30- and 15-year passthroughs, versus agency bullets: a) relative total returns b) option-adjusted spreads c) price-based regressions.