Mortgage-Backed securities (MBS) have become a hot topic in the last few years. While some argue its advantages outweigh costs, others claim it’s too costly and risky. MBS supporters typically claim that MBS offers higher returns than corporate bonds because they are backed with mortgages instead of just loans. This also allows for greater liquidity as they can be purchased and sold more easily than other securities. MBSs are also able to help lower systemic risk because of their diversification, which protects against any defaults or sudden changes in rates that can prove harmful otherwise.
There are those who still believe that MBSs can be risky, as they may incur credit losses and prepayment penalties. These risks often exceed any gains. MBSs are less transparent than corporate bonds, which provide some transparency about the financial status of the company that issued them.
MBS is similar to corporate bond trading in the sense that they both buy and sell debt instruments with the goal of making profits, no matter what situation arises. This ultimately leads to a successful result. The main difference is the type of security traded. While corporate bonds are issued by a single entity such as a corporation or government agency, mortgage-backed securities combine multiple loans to create broader asset classes.