On Wed, Sep 24, 2008 at 4:51 AM, Sean asks:
Do u think treasury will manage their new mortgage portfolio like a conventional manager – hedging the negative convexity with swaps and swaptions?
I wouldn’t; they might.
It wouldn’t serve public purpose to do that. It would add to volatility.
Just doing the exchange reduces volatility as the government absorbs it, which I see as serving public purpose.