Iginla2010

think if rates rise MBS prepayment speeds are affected ( i.e. they reduce ) . So there is contingent risk in rising rates too. If we talk about MBS we’re not talking about ordinary bonds.
Most MBS investors would hedge interest rate exposure and only try and earn the spread ( the OAS).
The OAS model uses assumptions of prepayment speed and will be hurt by either slow or fast prepayments
BTW : I would have picked interest rate risk too.