The recent spike in discount coupon issuance and the corresponding composition shift in 30-year conventionals could significantly redefine what is TBA deliverable and dramatically alter the convexity profile of the mortgage universe, analysts said.

In a recent report, Morgan Stanley analysts noted the considerable amount of 4.5 coupons issued in August, while at the same time examining the 30-year conventional universe's evolving composition. A shift in 4.5 TBA delivery is expected - currently worth roughly 5/32 on the TBA price - and could follow for all discount coupons if mortgage rates remain stable for an extended period.

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