2010 Mortgage Market Visualization

Jan. 7, 2011

We put together this animation of closing prices for the 30Y TBA Prices–the most liquid part of the largest debt market in the word. Y axis price, X axis is coupon. Prepay risk increases as you move right, duration risk increases as you move left. In general, prices on the left side of the chart are more volatile than those on the right, thus duration risk trumps pre-pay risk. Another take-away is that after the Fed announced Quantitative Easing 2 (QE2) in mid-fall, the market sells off strongly. It seems the market had front-ran the Fed.

View it here: 2010 TBA Market Visualization