What is market directional?

Any def?

unhedged MBS

That’s a good way. So, equity is market directional, but T bond is not?

MBS securities are considered to be market directional, because investors feel that they should only be held when interest rates are rising b/c they dont want to worry about the prepayment risk when interest rates are decreasing, that is why they are called market directional…BUT we know that this isn’t true b/c we can hedge the prepayment risk with a 2-bond hedge :). This is CFAI land.

ok, thanks

Where in the cfai texts is this covered?

Reading 30

I love the “This is CFA Land”