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  • July 2020
  • Case
  • HBS Case Collection

Mortgage Backed Securities and the Covid-19 Pandemic

By: Emil N. Siriwardane, Luis M. Viceira and Dean Xu
  • Format:Print
  • | Language:English
  • | Pages:25
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Abstract

In April 2020, global financial markets were still reeling as the COVID-19 pandemic spread rapidly across the world. Global equity markets had initially fallen by 30% in response to the pandemic, and high-yield credit markets had dropped by nearly 20%. In contrast, U.S. Treasury markets were up 20% year-to-date (YTD). Interestingly, the U.S. Mortgage Backed Security (MBS) market had been much less responsive to the health crisis, exhibiting very low volatility throughout this period and returning about 2% YTD. Maya Russell, head of asset allocation research at a large global institutional investor, must make a recommendation on whether her fund’s board should invest in MBS, and if so, whether this is a good time for the fund to implement the allocation and whether it should do so pursuing an active or a passive investment approach. This case covers a wide range of topics in fixed-income investing, including duration and interest rate risk, prepayment risk, mortgage securitization, and the design of mortgage-backed securities. These concepts are analyzed from the perspectives of both individual and professional investors in fixed-income and mortgage markets.

Keywords

COVID-19; Mortgage-backed Securities; Health Pandemics; Financial Markets; Assets; Resource Allocation; Financial Instruments; Decision Making

Citation

Siriwardane, Emil N., Luis M. Viceira, and Dean Xu. "Mortgage Backed Securities and the Covid-19 Pandemic." Harvard Business School Case 221-010, July 2020.
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About The Authors

Emil N. Siriwardane

Finance
→More Publications

Luis M. Viceira

Finance
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    OTC Intermediaries

    By: Andrea L. Eisfeldt, Bernard Herskovic, Sriram Rajan and Emil Siriwardane
    • 2022
    • Faculty Research

    Segmented Arbitrage

    By: Emil Siriwardane, Adi Sunderam and Jonathan L. Wallen
More from the Authors
  • Pershing Square's Pandemic Trade Teaching Note Courseware By: Luis M. Viceira and Emil N. Siriwardane
  • OTC Intermediaries By: Andrea L. Eisfeldt, Bernard Herskovic, Sriram Rajan and Emil Siriwardane
  • Segmented Arbitrage By: Emil Siriwardane, Adi Sunderam and Jonathan L. Wallen
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