The production coupons (30-year 5s, 15-year 4.5s) look fairly priced vs. non-mortgage alternatives. With dollar rolls special, overweight this sector, at the expense of the 5-year part of the Treasury or Agency curve. Neutral on higher coupon mortgages (6s and above). They look cheap, but offer little carry at speeds expected the next few months. Duration on these securities is low or negative; they will do phenomenally well in a rate backup. Likes GNMA 5.5s much better than conventional counterparts. With 30-year [6 + 6.5]s representing almost 60% of 30-year outstandings, pay up for specified pools in these coupons.
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