The mortgage-backed securities are intended to provide negative duration exposure and benefit from rising rates. The fund managers hope to create an overall portfolio duration of within -5 to -15 years, which will offset long positions in U.S. Treasuries, interest rate swaps and other duration products.
Duration is a measure of a fixed-income asset’s price sensitivity to changes in interest rates. A longer duration typically translates to a greater negative impact in a rising rate environment. A negative duration occurs when a debt security’s price moves in the direction as interest rates – interest rates and bond prices typically have an inverse relationship.
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Max Chen contributed to this article.