Prepayment responsiveness has been significantly reduced because of the housing/financial crisis that has resulted in very tight credit conditions and significant home value declines. Analysts expect this phenomenon to remain for some years, especially as home values continue to weaken and underwriting standards tighten.

Slower prepayments are positive for agency MBS given that most of the market is trading at a premium. The sector should also benefit from limited supply and better convexity.

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