infinitybenzo

Market directional means payoff profile changes when the Market goes one way vs the other. Caused by prepayment risk in an MBS and associated negative convexity.

If hedged it is no longer directional.

infinitybenzo

manishsd Wrote:
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> I would just say this:
> MBS are generally market directional, their value
> increases when rates go down, but not to the full
> extent like a non-callable bond
>
> To make them "truly" or "completely" market
> directional, you have to hedge them.

No, you have it backwards, they are considered market directional, UNLESS you hedge them.