Comment by JackFr

They said “short duration” not “short term”. The real risk is from spread duration rather than simple interest rate duration, and assuming they don’t lever up, that should be minimal.

The beauty of MBS floaters is that you’re relatively insensitive to prepayments because to a first approximation they’re always priced at par.

From an investor standpoint, as they say, you’re making maybe SOFR + 1.5%. That’s not a very sext return. But let’s say your banks repo desk is willing to finance the purchase at 5% down. Then you can lever up your investment 20x and now you’re a big shot making SOFR+30%, which is very sexy. But what’s that, when your lever like that, a tiny decline in price wipes out your entire stake (Welcome to 2008).