With rising rates, investors should pay close attention to cap risk, as embedded caps will significantly impact relative value in the hybrid ARM market going forward, said analysts last week.

In a recent report by Credit Suisse First Boston, they said that cap risk - especially for those investors who saw the repricing of CMO floaters and ARMs in 1994 - could serve as a major driver of valuations of securities that would otherwise trade to relatively short durations.

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