so point is if int rate are decling you will prefer LOW coupon than high coupon coz low coupon shows less -ve convexity So it would rise relatively higher than high coupon
if int rate are increasing than Should you prefer high coupon than low coupon?
who is the you in the above statement?
If I were the Bond Issuer - I would prefer the low coupon - since I only have to pay a low coupon out.
If I were the Bond Investor - which is what the Portfolio Manager would be - he would want a High Coupon. Since that is Income.
1, Xu moves from callable to non-callable bind. 2, Xu overweights low-coupon MBS.
MBS and calllable bond may not be comparable in this case.
A callable bond has a call price, while an MBS doesn’t (it’s prepayment).