When rates rise MBS investors face extension risk and when rates are dropping investors face prepayment risk. If this is true then when is the optimal time to invest in MBS?

1 Answer 1


Ideally, both those risks are supposed to be priced into the market rates already.

So the optimal time to invest is a time when the market expects interest rate volatility in the future but you know better.

If you don't have a crystal ball, it's hard to tell. There's certainly no general answer, since even with (hypothetical) perfect knowledge of future risks it depends on which risk profile you need/want, given your goals and the rest of your portfolio.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .