Baird Fixed Income Insights: Convexity Pulse

In this week's Convexity Pulse, Kirill Krylov and Steven Scheerer discuss Truist's recent $8 billion portfolio repositioning and what the $1.4 billion accompanying loss reveals about the changing economics of bank investment portfolios and the uneven return of depository demand. The episode also explores the surprising prepayment behavior of extended-term Ginnie Mae collateral, where 40-year modified mortgages can generate unusually fast principal returns, and how combining AmeriHome servicing with loan-balance restrictions may offer more efficient call protection in 30-year 6s.

In this week’s Convexity Pulse, the very real, decidedly non-imaginary Steven Scheerer rejoins Kirill Krylov so they can discuss how changing demographics and emerging mortgage structures could reshape housing turnover and agency MBS prepayments. They examine why rising household dissolution among aging homeowners may eventually weaken the mortgage lock-in effect, and whether defeasance could allow borrowers to unlock the economic value of low-rate mortgages without conventional prepayment. The episode also explores the resurgence of hybrid ARMs as an affordability tool and the potential implications for agency issuance, along with the unusual two-sided prepayment profile of low-FICO Rocket-serviced collateral.

In this week’s Convexity Pulse, Kirill Krylov, with some help from an imaginary Steven Scheerer, examines whether September’s sharp MBS underperformance has finally created an attractive re-entry point for agency mortgages. The episode explores how temporary mortgage-rate buydowns can provide call protection while subsidies remain in place but create a potential path to principal return as they expire, and why substantial borrower equity can weaken the traditional mortgage lock-in story in deeply discounted collateral. Kirill also looks beyond headline yields in CMO floaters, using relative-value analysis to distinguish structures that genuinely offer excess yield from those simply comp...

In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer examine how changing borrower behavior is creating new ways to think about prepayment protection across agency MBS. They discuss why Fannie Mae’s new proactive mortgage-insurance cancellation outreach could make existing low-rate mortgages easier for some borrowers to keep, and why seasoned 5.5s that already survived a refinancing opportunity may offer inexpensive evidence of call protection. The episode also explores why specified collateral can still add value in deeply discounted coupons, where faster housing turnover can improve pull-to-par and carry today while call-protection characteristics may provide value if rate...

In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer discuss growing dispersion beneath the agency MBS basis, including why structurally limited supply is strengthening the relative-value case for 15-year mortgages versus 30-years. They examine Norges Bank’s proposal to add agency MBS to Norway’s sovereign wealth fund benchmark and why the broader implication may extend well beyond the potential near-term demand. The episode also explores whether remote work is an overlooked driver of housing turnover, as Federal Reserve research showing greater mobility among remote workers raises new questions about lock-in, geography, and prepayment behavior in deeply out-of...

In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer discuss why broad agency MBS valuations remain relatively neutral even as opportunities beneath the surface become increasingly differentiated. 

They examine how Rocket and CrossCountry’s unusually early move to higher conforming loan limits could signal a growing competitive race among originators and gradually reshape what investors consider large-loan collateral. 

The episode also explores why Texas may offer unusually strong turnover protection in discount MBS, as shorter homeowner tenure, elevated new-construction activity, relocation patterns, and actual mortgage speeds point toward faster non-rate-driven prepayments. They also revisi...

In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer are joined by Bloomberg Intelligence MBS Strategist Erica Adelberg to examine the “hidden costs of cheap” across housing and mortgage markets. They discuss why policies designed to lower borrowing costs can have unintended consequences for home prices, MBS convexity, and GSE credit risk, while exploring how VantageScore adoption and increasing originator concentration could reshape refinancing behavior. The conversation also covers the changing marginal buyer of agency MBS, the evolving role of banks and foreign capital, and how builder incentives and shifting housing affordability are changing the collateral reaching the mo...

In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer discuss how rising federal debt and persistent Treasury supply could keep pressure on long-duration assets even if the Fed eventually eases, while Fannie Mae’s latest forecast pushes the expected refinancing wave further into the future. 

They examine a new wrinkle in VantageScore adoption, as updated mortgage-insurer capital requirements create different economics for VS4 and Classic FICO loans and add another layer of complexity for credit-focused specified pools. 

The episode also explores Ginnie Mae’s enhanced disclosures, which allow investors to separate FHA and VA delin...

In this week's Convexity Pulse, Kirill Krylov and Steven Scheerer discuss why agency MBS can look expensive at the broad basis level while still offering compelling opportunities beneath the surface. They examine how VantageScore adoption is changing the information content of traditional low-credit-score specified pools, potentially creating new distinctions in refinance friction and call protection. The episode also explores the return of bank demand, where recent Call Report data show depositories adding agency MBS selectively through Ginnies and CMOs rather than broadly extending into conventional pass-throughs.

In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer discuss why looking beneath the headline is becoming increasingly important across the mortgage market. They examine how AI’s near-term investment boom could complicate the longer-term disinflationary narrative, and why growing specified-pool issuance masks significant differences in collateral composition, scarcity, and call protection. The episode also explores the shift toward higher-cap CMO floaters, the growing appeal of Guaranteed Maturity Classes for investors seeking a hard final maturity with incremental yield, and what UWM’s recent capital raise could mean for future mortgage production.

In this week's Convexity Pulse, Kirill Krylov and Steven Scheerer discuss why growing macro uncertainty has done little to change their constructive intermediate-term outlook for agency MBS, as improving technical demand increasingly offsets a more challenging rate environment. They examine two underappreciated forms of housing lock-in—capital gains taxes and America's aging housing stock—and explain why both may ultimately create future turnover rather than suppress it indefinitely. The episode also explores how maintenance costs, homeowner demographics, and state-level tax exposure are becoming increasingly relevant inputs for prepayment modeling, particularly in seasoned legacy discount collateral where even modest changes in t...

In this week's Convexity Pulse, Kirill Krylov and Steven Scheerer discuss why mortgage investors may be placing too much emphasis on day-to-day Fed expectations and too little on the structural forces reshaping agency MBS. They examine how benchmark evolution, growing foreign demand, and changing index composition are quietly altering the investment landscape, while rising homeowners insurance costs and regional affordability pressures create new layers of refinance friction and borrower behavior. The episode also explores why the strongest specified-pool opportunities increasingly come from risk layering, where first-time homebuyers, high-LTV borrowers, elevated DTIs, and other complementary characteristics combine to produce more...

In this week's Convexity Pulse, Kirill Krylov and Steven Scheerer discuss why today's mortgage market continues to defy simple narratives. They examine how shifting Fed expectations and persistent macro uncertainty are reinforcing the importance of disciplined security selection over broad directional bets. The episode also explores why "aging in place" may not permanently suppress housing turnover as many investors assume, why recent swings in GSE portfolio activity may say less about long-term demand than headlines suggest, and how the agency CMO market is evolving from broad valuation opportunities toward a more selective, collateral-driven environment.

In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer discuss why technical factors continue supporting agency MBS, even as spreads approach fair value and investors become increasingly selective. They examine how intergenerational wealth transfers could decouple housing demand from mortgage production, creating a future where healthy home sales no longer translate into robust agency MBS supply. The episode also explores the real implications of 3D-printed housing for mortgage investors and explains why yesterday’s fastest-prepaying collateral may ultimately become tomorrow’s most compelling burnout opportunity.

Every generation believes it is navigating unprecedented uncertainty. This week, Kirill Krylov and Steven Scheerer explore what that uncertainty means for mortgage investors today. The discussion covers a surge in bond fund inflows, renewed strength in agency MBS performance, and the increasingly constructive technical backdrop created by limited supply and delayed refinancing activity. The hosts then examine whether the "convexity beast" is beginning to wake up as higher-coupon collateral and shifting ownership dynamics bring mortgage hedging flows back into focus. The episode concludes with a look at rising borrower debt-to-income ratios and a new perspective on refinance risk. Rather...

In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer discuss why volatility, rather than the outright direction of rates, may remain the most important variable for agency MBS investors as markets navigate a resilient labor market, geopolitical uncertainty, and an important upcoming inflation report. They examine whether the market is placing too much emphasis on GSE portfolio growth and not enough on the diminishing marginal impact of additional agency purchases, funding constraints, and the increasingly important role of private capital. The episode also explores a surprising specified-pool opportunity within AmeriHome collateral, where slower refinance responsiveness and correspondent-lending dy...

In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer discuss why agency MBS fundamentals remain more constructive than recent volatility would suggest, despite geopolitical uncertainty and seasonal supply pressures. They examine the growing role of non-rate-driven borrower behavior, including how retirement funding needs, rising housing costs, and increasing homeowner liquidity demands could reshape prepayment patterns in seasoned discount collateral and certain segments of Ginnie Mae MBS. The episode also explores Freddie Mac’s overhaul of low-loan-balance pooling practices and what the changes reveal about the evolution of specified-pool investing, prepayment modeling, and collateral differentiation in today’s mortga...

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 beginnin...

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 wh...

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...

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 mi...

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...

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.

Kirill Krylov and Steven Scheerer discuss widening mortgage spreads amid rising Treasury yields and a Fed that remains firmly in wait-and-see mode. They examine the persistent U.S. housing shortage and the growing impact of mortgage rate lock-in on market turnover. The episode then dives into the classic New York specified pool story, explaining how the state’s mortgage recording tax and CEMA refinancing process create powerful call protection for agency MBS investors. Finally, they examine the rebranding of PHH Mortgage to Onity and why servicing transfers of delinquent loans could accelerate resolution activity and affect prepayment speeds.

Kirill Krylov and Steven Scheerer review February’s prepayment report and explain why refinancing activity is increasingly concentrated in the higher coupons of the stack as modest rate rallies begin to test refinance thresholds. They then explore the growing importance of appraisal waivers, or Property Inspection Waivers (PIWs), and how removing the traditional appraisal bottleneck is subtly changing refinance friction and convexity dynamics across mortgage pools. The episode closes with a look at the “hidden” side of housing affordability, where rising property taxes and insurance costs are quietly consuming a larger share of the monthly mortgage payment.

Kirill Krylov flies solo today to examine the market implications of escalating geopolitical tensions along with renewed volatility and what that could mean for mortgage spreads and GSE purchase activity. He breaks down the powerful technical backdrop created by record fixed income inflows and increased retained portfolio flexibility at Fannie and Freddie. The episode then turns to proposed MSR capital reforms and rising FHA delinquencies, exploring how shifts in servicing economics and borrower stress could gradually reshape prepayment behavior across the agency markets. 

Kirill Krylov and Steven Scheerer unpack a January housing slowdown driven more by weather and normalization than structural weakness, while highlighting a meaningful shift in buyer leverage and rising discounts off list prices. They then turn to household balance sheets, where climbing credit card delinquencies reveal a growing K-shaped dynamic that could dampen refinancing behavior in higher-coupon Ginnie cohorts. The episode closes with a deep dive into the GSE cash window, examining how competitive execution, selective collateral retention, and shrinking specified pool lists may be quietly reshaping supply, convexity dispersion, and market structure.

Kirill Krylov and Steven Scheerer examine the strong fund inflows seen in January, the rebound of active inflows vs passive at the end of the month, and how flows may be an indicator of MBS investors increasingly viewing GSE MBS buying not as a one-off program, but as part of a broader policy backstop. They highlight the risks of policy-driven spread tightening, and how GSE reform goals collide with using the agencies as rate-management tools. The episode also dives into shifting issuance dynamics, including a decline in specified pool share and a rapid migration from Ginnie TBA-eligible MULTIs into...

Kirill Krylov and Steven Scheerer revisit the surge in GSE MBS buying and explain why its apparent success may create longer-term challenges for housing supply, mortgage rates, and GSE reform. They examine how shifts in Fed leadership and balance sheet philosophy could keep mortgage rates sticky even as policy rates ease, and why predictability matters more than low rates for housing liquidity. The episode closes with a deeper look at how using the GSEs as an affordability tool complicates any credible path toward privatization or exit from conservatorship.

Kirill Krylov and Steven Scheerer address fears that GSE MBS buying could crowd out private investors, and explain why the data instead point to strong demand with a meaningful shift from active to passive flows. The episode also tackles the institutional investor executive order, rising political and inflation uncertainty, and a housing market caught between improving buyer interest and stubbornly tight supply.

Kirill Krylov and Steven Scheerer explore the tighter spreads in MBS post GSE purchase announcement, and why some investors are now hesitant to board the “government train.” They dive into where that demand is likely to land across UMBS, Ginnies, and structured products, and why execution, hedging, and net supply constraints matter as much as the headline. The episode also covers rising policy risk around FHA mortgage insurance changes and a reality check on new-home sales, where volume has improved but at the cost of pricing power.

Kirill Krylov and Steven Scheerer break down the large-scale GSE MBS buying program announced last week and why a fast, visible policy fix may carry meaningful second-order consequences for market structure, supply, and long-term affordability. They highlight 2025’s historically low net MBS issuance and record-high CMO activity. The episode also tackles why banning institutional homebuyers is unlikely to fix affordability and what all of this means for positioning across coupons as 2026 unfolds.

In the first Convexity Pulse of 2026, Kirill Krylov kicks off the year assessing an MBS market that looks rich after a historically strong 2025. He walks through why spreads are tight across coupons and vintages, why inflows still matter more than valuations alone, and why investors will require deeper pool-level and out-of-index strategies in the year ahead. The episode also examines shifting housing policy priorities, the limits of rate relief, and why securitization rates may now pose more downside than upside risk for MBS supply.

In the final Convexity Pulse episode of 2025, Kirill Krylov and Steven Scheerer explore three themes shaping the 2026 MBS outlook: the quiet return of GSE buying, the growing policy debate around whether Fannie and Freddie should support construction lending, and the steady role of money managers as the market’s center of gravity. They discuss how recent FHFA actions have reopened retained portfolio capacity, why AD&C lending remains controversial despite supply shortages, and how passive and active fund flows continue to anchor MBS demand. The episode closes with a forward-looking assessment of where spreads may settle as banks, GSEs, an...

Kirill Krylov and Steven Scheerer break down one of the biggest structural developments in years: Freddie Mac’s new Loan Level Directed Collateral platform and how it reshapes the design of REMIC collateral from the ground up. They explain how LLDC allows dealers to deconstruct pools and rebuild pseudopools at the loan level to target specific credit, seasoning, geographic, and convexity features that had never been selectable before. The episode then turns to the outlook for bank demand in 2026, highlighting why deposit growth, a steeper curve, regulatory shifts, and relative value could draw banks back into MBS in meaningful si...

In this post-Thanksgiving special edition of the Convexity Pulse, Kirill Krylov is serving up the 2026 Agency MBS outlook that the team has been preparing alongside our holiday roasts. He breaks down the expected rise in gross mortgage supply, the restrained path for net supply, and the broadening demand picture across GSEs, banks, REITs, ETFs, and asset managers. Taken together, these forces point to an optimistic outlook for the mortgage basis next year. The episode wraps with a look at the 2026 housing market, highlighting modest home price gains, cooling rates, and a gradually improving but still affordability-constrained environment.

This week on the Convexity Pulse, Kirill Krylov and Steven Scheerer break down the shift from equity outflows into fixed-income inflows and what that means for MBS performance heading into year-end. They explore the “silver wave” of seniors carrying mortgage debt into retirement and how this creates welcome increases to prepayment speeds in discount cohorts. The episode closes with a look at assumable and portable mortgage proposals, examining how each idea could reshape prepay behavior, credit exposure, and pricing across the MBS market.

This week's Convexity Pulse finds Kirill Krylov and Steven Scheerer tackling three big mortgage market shifts: the rising talk of a 50-year mortgage, potential upcoming LLPA changes, and the debut of VantageScore 4.0 in agency MBS. They explore how credit scoring reforms and aging borrower demographics could reshape cash-out refi behavior, prepayment models, and MBS convexity. The conversation also highlights why extending loan terms might mask affordability problems rather than solve them.