What the MBS Graph Shows
The MBS graph is a visual tool that plots the performance, pricing, and yield characteristics of mortgage-backed securities over time. It typically displays coupon rates, yield-to-maturity, price movements, and prepayment speeds across different vintages and credit tiers. For fixed-income analysts and portfolio managers, the MBS graph serves as a quick reference to gauge market sentiment, relative value, and the impact of interest rate shifts on mortgage pools.
More from this site
Keep reading the latest coverage
These graphs aggregate data from multiple issuers — including government-sponsored enterprises like Fannie Mae and Freddie Mac, as well as private-label issuers — and present it in a format that highlights spreads, duration, and convexity at a glance. The horizontal axis usually represents time or maturity, while the vertical axis captures yield or price, with additional overlays for prepayment speed indices such as the Public Securities Association (PSA) benchmark.
Key Metrics Visible on the MBS Graph
Several metrics stand out when reading an MBS graph. The yield curve overlay shows how different coupon rates compensate investors for interest rate risk and extension risk. Spread columns reveal the premium or discount relative to Treasury benchmarks, reflecting credit and prepayment uncertainty. Prepayment speed indicators, often shown as a PSA ramp or single-month mortality rates, illustrate how quickly homeowners are refinancing or defaulting, which directly compresses or extends the life of the security.
Duration and convexity measures appear frequently on advanced MBS graphs, helping investors understand price sensitivity to rate changes. Because mortgage pools can be repaid early, MBS duration is not static — it shrinks in a falling rate environment and stretches when rates rise. The graph makes this dynamic visible, often with animated or multi-layered views that compare static duration to effective duration under different rate scenarios.
Reading MBS Graphs for Relative Value
Traders use the MBS graph to identify relative value across coupon tiers and issue dates. A steepening spread between two coupon points might signal that the market is underpricing a particular vintage, or it could reflect structural differences in the underlying loan pool, such as higher loan-to-value ratios or geographic concentration. Experienced analysts cross-reference the MBS graph with underlying loan-level data — FICO scores, combined loan-to-value ratios, and property types — before drawing conclusions.
The graph also helps spot roll-down opportunities, where a security moves down the yield curve as it ages, generating price appreciation if prepayments remain stable. Conversely, a flattening or inversion visible on the MBS graph can warn of rising refinancing risk, prompting investors to shorten duration or hedge with interest rate derivatives.
MBS Graphs and Macroeconomic Signals
Because mortgage-backed securities are tied to housing and interest rates, the MBS graph often mirrors broader economic cycles. During expansionary periods, prepayment speeds tend to rise, compressing spreads and tightening the graph. In recessions or volatile rate environments, the graph may show widening spreads, erratic prepayment patterns, and increased dispersion between prime and subprime pools.
The Federal Reserve's policy rate movements show up clearly on the MBS graph, as do forward guidance signals and quantitative tightening or easing programs. Analysts watch for shifts in the curve's shape — humps, kinks, or sudden spread compression — that can precede larger market repricings. The graph is not a crystal ball, but it captures the collective expectations of market participants in a single, readable format.
Limitations of the MBS Graph
The MBS graph has blind spots. It typically summarizes pools at the issuance level and may not capture idiosyncratic risk in individual loans. Prepayment models embedded in the graph rely on assumptions — such as a constant PSA speed — that can break down during extreme rate moves or housing market dislocations. Investors should treat the graph as a starting point for deeper due diligence, not a substitute for loan-level analysis or scenario testing.
Data frequency also matters. Some MBS graphs update daily, while others are weekly or monthly, and stale data can mislead during fast-moving markets. The best practice is to pair the MBS graph with real-time pricing feeds and liquidity metrics, especially for private-label or non-agency securities where trading volume can be thin and bid-ask spreads wide.
- MBS graph visualizes yield, price, and prepayment dynamics
- Key metrics include coupon spreads, duration, and PSA speeds
- Useful for relative value, roll-down, and macro signal analysis
- Limitations include aggregation bias and model assumption risk