I've been asked by a few clients why we exited our circa $250m position in AAA rated RMBS, which was a modest ~10% portfolio exposure that had performed brilliantly over 2017. The four charts below summarise why: house prices are falling; default rates are rising; supply of RMBS has surged while spreads have fallen; and, finally, borrower prepayments are declining, which is blowing-out the weighted average life of these bonds and adversely affecting prices.


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James Marlay

That second chart is a cracker