respond to discussion response

Mortgage-bocked securities allow banks to free up copital and allow investors to buy into mortgages. Mortgage-backed securities are a yield; this is becouse they compete for the same type of investor. An investor who wants to invest in these bonds is looking for a safe and steady return. The reason that mortgage-backed securities yields are higher is that they are slightly riskier than treasury yields and are affected by the change in treasury yield. To compensate for higher risk, they have a higher interest rate. When treasury yields rise, investors in mortgage-backed securities demand a higher rate because they want compensation for the higher risk. This was affected by the recent pandemic because the interest rate on a home mortgage is much higher than usual. These increased yields are due to higher inflation and the Federal Reserve raising interest rotes. Bond yields and bond prices have an inverse relationship. Meaning when yield rises, the prices of current bonds foll. Rising bond prices are not good for bondholders. When mortgage rates so up, the price of mortgage-backed securities goes down. This is directly offecting the investors who currently have mortgage-backed security bonds. The price of your bond falls to whatever other investors are willing to pay for it. This is because they have a higher rate of return off buying a new bond than buying one from you. The new bond is worth more than the one owned by the original investor becouse the price the bond was once worth went down due to the increase in rate. Investors are hoping that rates begin to balance and the price of the bond besins to rise again. After reading multiple sources it looks like this could happen soon, as the market continues to recover from the pandemic