Rising bond yields, convexity hedging and the Federal Reserve
The rise in US government bond yields since the beginning of the year is being closely watched by investors. One reason is the concern that yields will reach a tipping point that will accelerate sales of government bonds, causing a further jump in yields. This risk is related to the USD 9 trillion mortgage-backed securities market. In this Macro Flash Note, GianLuigi Mandruzzato looks at how this risk could evolve and what factors can mitigate it.
