With the mortgage index dipping into discount price territory, relative value is currently based on turnover expectations and not call risk, analysts said.

"Whether mortgages are rich or cheap is now simply a question of turnover expectations," said JPMorgan Securities in a recent report. "There has been a high degree of uncertainty around discount MBS durations. As a consequence, until there is incontrovertible data to the contrary, it is natural for the market to trade discounts to conservative turnover assumptions (especially with hedge fund selling and some bank liquidation)."

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