The Prices and Yields

| September 29, 2015

INSTRUCTIONS The price and yields on Mortgage Backed Securitizations (MBS) has changed significantly from the period leading up to the recession to now. Use the ten-year period from September 2005 to August 2015 for your analysis. Your paper have to include your analysis of the following issues: 1. Define Mortgage Backed Securities. 2. Utilizing the concept of Risk Structure, discuss the changes in the Risk Spread during this time period to evaluate the changing views regarding the riskiness of MBS. 3. Explain how the market for MBS had an impact on the real estate market, before, during and after the “Great Recession”. 4. Discuss the impact that changes in the riskiness of MBS had on the liquidity of banks or other financial institutions. 5. Include facts regarding the size and growth of the MBS market to understand why this one financial instrument had a large impact on the banking crisis in the fall of 2008. You do not need to have citations, but a bibliography of your reference sources should be included. NEED TO USE FRED to see the 10 year period It is difficult to get accurate information regarding MBS yields during the 10 year period. So that you can use FRED, I think that the Baa rates compared to the 10 year Treasuries will serve as a good indication of what happened to the risk spread during this period. As a note, the MBS spreads probably reacted more severe than the Baa bonds. Following is a link that you can use to access the chart comparing Baa and 10 year Treasuries. https://research.stlouisfed.org/fred2/series/BAA10Y USE THOSE from WSJ WSJ from September 28, 2015 Money & Investing section – “US Bonds Flash a Warning Sign” WSJ from September 23, 2015 Money & Investing section – “Treasury Yields at Zero Highlights Risk Fears” What is the linkage between prices and what is going on in the market? Also use the term risk spread and term spread and what does it really mean.

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