Decoding Bond Math: Why Seasoned MBS Win in Today’s Market

• The Equity Cushion: Unlike new issues, 10- to 15-year-old seasoned mortgage bonds feature low 30–40% LTVs, drastically reducing default risk. • Discount Advantage: Buying legacy MBS at ~75 cents on the dollar turns prepayment risk into a win, capturing fast capital appreciation if rate cuts trigger refinancing. • Rebounding Cash Flow: Rate cuts are widening the "excess spread," turning loss-recovery mechanisms back on and pushing select bonds above par. • Positive Convexity: While past hikes extended MBS duration and hurt prices, falling rates are now unleashing positive convexity to drive powerful bond rallies.