Hedging dynamically may mean this :
Prepayment risk - now what I understood is when int rate increase, prepayment period extends (i.e. like in a floating mortgage loan - if interest rate increases & you don’t wish to change ur monthly mortagage cost (EMI) your tenor increases in amortization schedule). When interest rate decreases, prepayment period shortens.
This means that mortgage duration is increasing (i guess due to increase in prepayment period) when interest rate increases & mortgage duration decreases when int rate decreases. This is against our desire. I mean we would like duration to increase when int rate goes down (to make it more sensitive to int rate to capture larger gains) & duration to decrease when int rate goes up (to loose less). To hedge we need to buy options or hedge dynamically. Hedging dynamically will require us to to increase duration (buy futures) when rates decline & decrease duration (selling futures when int rate increase. )