In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer finally reunite for the podcast’s long-delayed “50th” episode and discuss a mortgage market caught between elevated volatility and still-powerful carry dynamics. They examine how strong fixed income inflows, resilient refinance friction, and improving higher-coupon prepayment behavior continue supporting agency MBS despite rising Treasury yields and macro uncertainty. The episode also explores growing stress within consumer balance sheets, where rising insurance costs, HELOC usage, and elevated DTIs are creating increasingly segmented borrower behavior. Finally, they dive into two evolving specified pool stories: Florida collateral, where refinance friction is beginning to resemble New York-style call protection, and UWM low-balance pools, where selective recapture behavior is reshaping historical prepayment assumptions.

In this week’s Convexity Pulse, Kirill Krylov discusses how the mortgage market is transitioning from a volatility-driven environment toward one increasingly supported by carry, stable demand, and improving higher-coupon prepayment behavior. He examines the sharp rebound in gross agency MBS issuance while highlighting why net supply dynamics remain much tighter beneath the surface, particularly within the GSE market. The episode also explores how seasoned Texas collateral is emerging as one of the more interesting turnover stories in the mortgage market, as rising property taxes, insurance costs, and generational housing transitions weaken the traditional lock-in effect. The discussion highlights why mobility-driven prepays may remain surprisingly resilient even in a higher-rate environment.

Kirill Krylov discusses how a more stable but directionless rate environment is shifting MBS returns away from volatility-driven spread tightening and toward carry and demand support. He examines the evolving role of GSE buying, highlighting a transition from a steady policy bid to a more opportunistic, price-sensitive backstop that stabilizes spreads. The episode also explores a notable shift in bank behavior, as larger institutions begin to embrace seasoned 30-year MBS for their improved convexity and yield characteristics. Finally, Kirill highlights the growing importance of closing costs as a source of geographic prepayment dispersion, where transaction friction is increasingly shaping borrower behavior and call protection at the pool level.