Will Mortgage Bonds Enter the Vortex?

An explanation of the "convexity vortex."

In my previous post, I argued that bondholders will probably be able to tolerate any "tapering" of the Federal Reserve's asset purchases so long as they aren't using much leverage and are willing to hold to maturity. After all, the Fed has been bidding up financial asset prices to stimulate the economy, and I doubt financial policymakers would consciously choose to inflict substantial losses on savers.

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