Many groups were overweight agency mortgage-backed securities (MBS) as they believe the Fed will keep prices supported to avoid any rise in mortgage rates slowing the housing market again. Although agency pass-throughs are negative convexity instruments, most managers believe any rise in volatility this year will be associated with politics and will be temporary. Many managers also had small amounts of commercial mortgage-backed securities (CMBS) on which they were starting to take profits. However, T Rowe Price is letting its MBS positions diminish naturally and reinvesting in asset-backed securities to reduce the pre-payment risk.
Stefanie Ives/ David Sells, Citigate Dewe Rogerson: 0207 282 2815/63
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