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.

Kirill Krylov and Steven Scheerer discuss a more cautious near-term outlook for MBS as valuations remain tight and supply is set to increase against a backdrop of uneven demand. They explore how GSE buying behavior is evolving from a constant bid to a more conditional, price-sensitive backstop that stabilizes spreads rather than compresses them. The episode also examines the rollout of VantageScore alongside traditional Fair Isaac Corporation models, and how increased borrower optionality could reshape prepayment behavior and reduce call protection in legacy low-FICO pools.

In this week’s Convexity Pulse, Kirill Krylov discusses how improving technicals, declining volatility, and strong performance in production coupons are shifting the return profile in MBS from spread compression toward carry. He highlights the evolving demand landscape, with banks moderating as valuations tighten while asset managers and foreign investors begin to re-engage. The episode also explores duration extension dynamics across the index and why securitized sectors are driving changes beneath the surface. Finally, Kirill examines recent servicing developments and explains why large portfolio transfers may have a more gradual and nuanced impact on prepayment behavior than headline risk might suggest.

Kirill Krylov and Steven Scheerer discuss how markets are digesting a recent energy-driven shock, with inflation pressures rising in the near term even as growth expectations begin to soften. They explore why this tension is keeping rates range-bound and how a potential decline in volatility could create a more constructive backdrop for MBS, particularly in production coupons. The episode also examines the growing role of property taxes as a structural driver of housing affordability and prepayment behavior across regions. Finally, they revisit the resurgence of adjustable-rate mortgages and explain how widening spreads versus fixed rates are making ARMs a practical affordability tool in today’s market.

Kirill Krylov and Steven Scheerer discuss the evolving technical backdrop for agency MBS, including continued support from GSE portfolios and renewed demand from banks. They also examine how market stability has benefited from the absence of forced selling. The episode concludes with a discussion of changes to the VA loss mitigation waterfall and the potential impact on Ginnie Mae prepayment speeds and buyout activity.

Kirill Krylov and Steven Scheerer discuss the growing risk of a stagflationary macro environment as energy prices rise and the yield curve continues to flatten. They revisit their bank demand outlook and explain why changing capital rules and improved regulatory clarity could bring banks back as a meaningful long-term buyer of MBS. The episode also explores the proposed Road to Housing Act and how housing policy decisions could ultimately shape mortgage origination and long-term agency MBS supply.