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February 12, 2007

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John Nilles

7/26/2012 04:00 PM

I agree with Kendrick about volatility and the price received for selling it. If a manager needs spread and has an unchanged rate view, maybe optionality in discount MBS collateral might be better for total return that discrete calls found in corp certs or callable agency paper.

Kendrick Smith

7/26/2012 04:00 PM

Volatility is extreemly low. Options are cheap. Now is a good time to buy them not sell them. When you buy a callable investment, you are selling the call option to the issuer. The market is paying investors much less to take the same call risk than was available two years ago. New issue callable investments are rarely a good investment. If rates go down you lose your income and if rates go up you wish you had your cash back. You are just not getting paid enough to take that risk. This is especially true in this low volatility market.

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