RISK AND RETURN WITH MORTGAGE-BACKED SECURITIES
1986 will be a record year for mortgage-backed security (MBS) issuance and private debt issues backed by MBS, according to current wisdom. Last year, $110 billion in MBS were issued, making the market roughly equal in size to the corporate new issue market ($112 billion last year) and second only to the US Treasury itself ($171 billion last year). This year, the volume of MBS issues is expected to more than double, possibly reaching $250 billion.
The rally in the bond market will set off a wave of mortgage refinancings, and new security issuance from this source alone is estimated at about $100 billion, or 25% of the approximately $400 billion of MBS in existence.
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