What is market directional?

CFA Level III
#1

Any def?

#2

unhedged MBS

#3

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

#4

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.

#5

ok, thanks

#6

Where in the cfai texts is this covered?

#7

Reading 30

#8

I love the “This is CFA Land”