callables, MBS's, convexity and all that

Do we always assume that MBS/Callables are bad in a decreasing rate environment and good in an increasing?

In the negative convexity region, MBS/Callables will have increased duration in rising rates, causing value to fall faster than a treasury until it reaches the positive convexity region, correct?

Because the little chart is DURATION

Rising Rates Falling Rates

Negative Convexity, Increases Decreased

Positive Convexity Decreased Increase

Not even a “yep” or “nope”?

the increasing or decreasing of duration of MBS/Callable bonds is not what causes the value to fall faster/slower than treasuries, but rather the current duration level.

in the negative convexity region MBS/Callables actually have lower duration than treasuries, however their convexity is higher which means the change in duration is greater for MBS/Callables is higher than the change in duration for treasuries.

When interest rates decline - callables underperform bullets. [Due to the upper boundary imposed by the Call Price] (Bull Bond Market).

When Interst rates rise (Bear Bond Market) - Probability of early call diminishes and Calls outperform Bullets.

Puts also outperform in a Bearish outlook market (when rates rise).

Ok so I wont overcomplicate it.