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Posts Tagged ‘fixed income’

Mortgage Backed Securities (MBS) – What is Convexity Hedging?

September 6, 2010 Leave a comment

From FT Alphaville:

…when interest rates are very low homeowners often take advantage of the rates by refinancing and paying down their old mortgages [prepayment speed increases]. When that happens, MBS owners find their bonds are repaid faster than expected. To offset that, the MBS investors usually buy longer-dated [longer maturity] assets such as Treasuries.

In the opposite scenario i.e.

When interest rates start to rise, the reverse occurs and MBS investors start selling longer-dated stuff

When rates rise borrowers, the speed of prepayment decreases and the average life of MBS extends beyond their original period… i.e. it takes longer for MBS holders to get their money back

via FT Alphaville » How low can they go?.

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Performance of Canadian assets this decade

July 20, 2010 Leave a comment

How have various Canadian Assets performed since the heydays of 2000?

Which asset do you think appreciated the most?

stocks
bonds
commodities
your house

The chart below answers your question…

For the curious, here is the table with the relevant values:

Asset Class Proxy Annualized Return Total Return (Unannualized) Value of $100 at Start of Period
Stocks S&P TSX Composite Index 3.67% 45.13% $145
Bonds iShares Canada DEX Universe Bond Index 3.94% 43.95% $144
Commodities Bank of Canada Commodity Price Index 5.78% 78.68% $179
Existing Homes Teranet House Price Index 6.22% 86.51% $187
Inflation Consumer Price Index 1.89% 21.30% $121

Data Source:

Bank of Canada, Teranet, iShares & Yahoo Finance