Baird Fixed Income Insights: Convexity Pulse

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.

Kirill and Steven break down the surge in October prepayments and what it means for November’s setup. They analyze the GSEs’ meaningful portfolio expansion, with Fannie and Freddie adding more than $33 billion in the third quarter and discuss how further GSE demand could help stabilize spreads and liquidity. The episode closes with a look at early signs of renewed bank demand for MBS heading into 2026, as capital rules, rate cuts, and deposit growth start aligning for a potential re-entry.

This week on the Convexity Pulse, Kirill Krylov flies solo for a recap that spans gold’s sharp reversal, shifting fund flows, and REITs’ growing influence in the mortgage market. He unpacks the divergence between active and passive inflows, and the renewed buying power of leveraged REITs. He ends with thoughts on Bloomberg’s proposal to reintroduce Ginnie Mae custom pools into the Aggregate Index and how that could reshape MBS weights and convexity risk.

This week on the Convexity Pulse, Kirill Krylov and Steven Scheerer recap a “pre-Halloween rally” in Treasuries as softer inflation and fresh Russia sanctions push yields below 4%. They discuss the approaching end of Quantitative Tightening, a growing call for GSEs to re-enter the MBS market, and how that could reshape spreads and affordability. The duo closes with a deep dive into relative-value trades across the belly and premium coupons, revealing where convexity still hides in plain sight from inefficient Loan Balance 4.5s to high-DTI Mission 5.5s. 

This week on the Convexity Pulse, Kirill Krylov and Steven Scheerer widen the lens, tackling how the government shutdown’s data blackout is distorting market visibility and mortgage valuations. They explore the global “gold rush” as central banks swap Treasuries for bullion, the potential long-term impact of the Senate’s ROAD to Housing Act on affordability and Ginnie supply, and finish with a technical dive into the paradoxical behavior of Quicken low-loan-balance pools, the MBS trade investors love to hate but can’t ignore.

This week’s Convexity Pulse finds Kirill Krylov flying solo as he navigates a data blackout caused by the government shutdown, renewed U.S. / China trade tensions, and a market rally built more on uncertainty than conviction. He explores how missing data clouds mortgage modeling, reviews Bloomberg’s new weighted loan count feature for Supers, and connects America’s falling birth rate to the long-term housing pipeline. Kirill also dives into Florida’s cooling housing market and rising prepayment activity driven by AI-assisted loan processing.

This week’s Convexity Pulse kicks off with Kirill Krylov and Steven Scheerer reviewing September’s fixed-income performance and the new leading sectors at the end of Q3. They explore regional housing momentum led by the Midwest and Harvard’s long-range outlook for homeownership through 2035. They highlight the record pace of CMO issuance this year and focus on September's shifting trends as rates rallied. The episode closes with a deep dive into FICO’s new direct licensing model — a potential shake-up in the mortgage credit ecosystem.

This week’s Convexity Pulse unpacks stronger-than-expected GDP data that may slow the pace of Fed cuts, alongside shifting fund flows that left 15-year MBS rebounding while Ginnies lagged. Kirill breaks down conforming loan limit projections, the pitfalls of relying too heavily on refi indices as a direct translation to prepay speeds, and the surprising strength in new home sales. He also explores how seniors carrying mortgages into retirement create unexpected prepay risk in discount pools.

This week’s Convexity Pulse unpacks the Fed’s first rate cut and its ripple effects across MBS performance, with lower coupons and belly sectors still leading the way while production coupons lag. Kirill and Steven highlight consumer debt fragility, housing market contradictions, and builder hesitancy despite lower rates. They also dive into relative value in low coupon CMOs versus pools, and wrap with Detroit’s NBA-backed down payment assistance pilot that could reshape affordability strategies.

This week’s Convexity Pulse features special guest Tom Tzitzouris of Strategas, who joins Kirill Krylov and Steven Scheerer to discuss consumer debt strains, the myth of Fed independence, and the implications of balance sheet policy for MBS investors. The team also covers the Rocket–Mr. Cooper merger and its impact on servicing speeds, before turning to the looming wave of AI-driven refinancing that could reshape convexity risk in 2026.

On this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer discuss long term trends in the evolution of the Bloomberg Agg’s composition, leading to a higher share of Treasuries, at the expense of MBS. They highlight some striking stats regarding housing affordability and how weaker home sales, combined with higher rates, has translated into lower MBS supply. With 15yr MBS supply shrinking over the last few years, the sector has performed well, and both agree that inefficiencies in loan balance distributions of 15yr pools can be a convexity enhancing feature. 

On this week’s Convexity Pulse, Steven Scheerer joins Kirill Krylov to review August fixed income index performance, where MBS posted their best excess return of the year, far outpacing corporates on the strength of a 30-year sector rebound. They dissect bank call report data showing notable shifts in MBS product mix and examine CMO issuance trends, with Ginnie deals running at record pace and floaters maintaining dominance. The episode closes with a technical dive into convexity layering, highlighting how Low Loan Balance, Mission, and Quicken features interact to reshape prepay profiles.

On this week’s Convexity Pulse, Kirill reviews last week's MBS market dynamics and a few post Jackson Hole macro thoughts. Turning to housing, he explores the narrowing cost gap between new and existing homes, the evolving role of LLPA waivers in Mission loans, and how these waivers provide call protection for MBS investors. Finally, he discusses Baird's “4+1” MBS strategy tailored for depositories, highlighting 15yr MBS, Seasoned 30yr Collateral, CMOs, and select niche sectors.

In this week’s Convexity Pulse, Kirill Krylov reviews another strong week for mortgages as spreads tightened and volatility eased—though he warns the calm may soon break. He digs into the supply–demand tug-of-war shaping MBS markets, with tepid but steady bank buying, REITs stepping up, and the GSEs still waiting in the wings. Finally, he walks through relative value opportunities across the UMBS 30yr coupon stack, from deep discounts to production coupons and the challenging high-coupon minefield.

Kirill discusses recent mortgage market dynamics, including MBS outperformance amid declining volatility, ETF inflows and the Bank of England’s historic rate cut last week. Then he dives into the Trump administration’s floated plan to partially privatize Fannie Mae and Freddie Mac. And his menu of convexity enhancing tapas includes a discussion of how prepayment protection on high-LTV conventional pools would improve in a negative HPA environment, and the relative value of ITM investor pool payups compared to other spec stories (like FL) that have similar multipliers.