Baird Fixed Income Insights: Convexity Pulse

61 Episodes

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A $1.4 Billion Ticket to Better Carry

2026-10-2627:56

In this week's Convexity Pulse, Kirill Krylov and Steven Scheerer discuss Truist's recent $8 billion portfolio repositioning and what the $1.4 billion accompanying loss reveals about the changing economics of bank investment portfolios and the uneven return of depository demand. The episode also explores the surprising prepayment behavior of extended-term Ginnie Mae collateral, where 40-year modified mortgages can generate unusually fast principal returns, and how combining AmeriHome servicing with loan-balance restrictions may offer more efficient call protection in 30-year 6s.

Demographics, Defeasance, Return of ARMs, and Rocket LFICO Prepay Paradox

2026-10-1924:28

In this week’s Convexity Pulse, the very real, decidedly non-imaginary Steven Scheerer rejoins Kirill Krylov so they can discuss how changing demographics and emerging mortgage structures could reshape housing turnover and agency MBS prepayments. They examine why rising household dissolution among aging homeowners may eventually weaken the mortgage lock-in effect, and whether defeasance could allow borrowers to unlock the economic value of low-rate mortgages without conventional prepayment. The episode also explores the resurgence of hybrid ARMs as an affordability tool and the potential implications for agency issuance, along with the unusual two-sided prepayment profile of low-FICO Rocket-serviced collateral.

Steven Took the Week Off; Kirill & MBS Market Did Not Take It Well

2026-10-0520:34

In this week’s Convexity Pulse, Kirill Krylov, with some help from an imaginary Steven Scheerer, examines whether September’s sharp MBS underperformance has finally created an attractive re-entry point for agency mortgages. The episode explores how temporary mortgage-rate buydowns can provide call protection while subsidies remain in place but create a potential path to principal return as they expire, and why substantial borrower equity can weaken the traditional mortgage lock-in story in deeply discounted collateral. Kirill also looks beyond headline yields in CMO floaters, using relative-value analysis to distinguish structures that genuinely offer excess yield from those simply compensating investors for cap and extension risk.

Should I Stay or Should I Go? Borrowers That Already Answered

2026-09-2826:36

In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer examine how changing borrower behavior is creating new ways to think about prepayment protection across agency MBS. They discuss why Fannie Mae’s new proactive mortgage-insurance cancellation outreach could make existing low-rate mortgages easier for some borrowers to keep, and why seasoned 5.5s that already survived a refinancing opportunity may offer inexpensive evidence of call protection. The episode also explores why specified collateral can still add value in deeply discounted coupons, where faster housing turnover can improve pull-to-par and carry today while call-protection characteristics may provide value if rates eventually rally.

Remote Workers Beef Up OTM Speeds & Norway Flirts with Convexity

2026-09-2124:27

In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer discuss growing dispersion beneath the agency MBS basis, including why structurally limited supply is strengthening the relative-value case for 15-year mortgages versus 30-years. They examine Norges Bank’s proposal to add agency MBS to Norway’s sovereign wealth fund benchmark and why the broader implication may extend well beyond the potential near-term demand. The episode also explores whether remote work is an overlooked driver of housing turnover, as Federal Reserve research showing greater mobility among remote workers raises new questions about lock-in, geography, and prepayment behavior in deeply out-of-the-money mortgages.

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Baird Fixed Income Insights: Convexity Pulse