Baird Fixed Income Insights: Convexity Pulse
Sep 21, 2026 · 24 min · 10 segments
In this week’s Convexity Pulse, Kirill Krylov and Steven Scheerer discuss growing dispersion beneath the agency MBS basis, including why structurally limited supply is strengthening the relative-value…
Kirill KrylovHost
Steven ScheererHost
Well, I think we should start with the Fed, but only briefly, right? Because I think the mortgage story is even more interesting than the macro story this week, though I might be biased being the MBS strategist.
But the dots certainly did not suggest that Fed was promising us a one-and-done deal.
Mortgage rates are high enough that much of the universe remain comfortably or uncomfortably out of the money.
My instinct, Steven, is that this keeps the carryback drop reasonably favorable, but it doesn't make broad mortgage beta automatically attractive at all.
Fund flows are still constructive, but the composition has changed quite a bit.
The latest taxable fixed income flows were down from the mid-August pace, and almost all of it in the recent report was passive money.
Active funds brought in about a half a billion, while passive funds got around $9.7 billion, roughly 94% of the total.
Now, year to date, the total fund flows are still enormous at over $550 billion, which is nearly 90% above the amount that we had seen in 2025 at this point of the year.
So the demand backdrop is still supportive, particularly for the larger index-weighted mortgage sectors.
Well, first of all, I think we will see a softer week or two on a follow, softer in terms of the flow.
But the last point you made becomes super important when we look at valuations.
Because mortgage market is really telling us two different broad sector level stories.
30-year current coupon basis are around 117 basis points versus Baird Fair Value, which sits right around 120 basis points, which puts it at the tighter edge of our model's fair value range of 117 to 123 basis points.
Although note, Steven, by contrast, the 15-year basis is now at 73 basis points, with the latest move pushing it wider than our model fair value range, or its upper bound, I should say, 63 to 69 basis point.
How comfortable are you, Steven, leaning into this relative value 30 versus 15-year
Well, I think we should start with the Fed, but only briefly, right? Because I think the mortgage story is even more interesting than the macro story this week, though I might be biased being the MBS strategist.
But the dots certainly did not suggest that Fed was promising us a one-and-done deal.
Mortgage rates are high enough that much of the universe remain comfortably or uncomfortably out of the money.
My instinct, Steven, is that this keeps the carryback drop reasonably favorable, but it doesn't make broad mortgage beta automatically attractive at all.
Fund flows are still constructive, but the composition has changed quite a bit.
The latest taxable fixed income flows were down from the mid-August pace, and almost all of it in the recent report was passive money.
Active funds brought in about a half a billion, while passive funds got around $9.7 billion, roughly 94% of the total.
Now, year to date, the total fund flows are still enormous at over $550 billion, which is nearly 90% above the amount that we had seen in 2025 at this point of the year.
So the demand backdrop is still supportive, particularly for the larger index-weighted mortgage sectors.
Well, first of all, I think we will see a softer week or two on a follow, softer in terms of the flow.
But the last point you made becomes super important when we look at valuations.
Because mortgage market is really telling us two different broad sector level stories.
30-year current coupon basis are around 117 basis points versus Baird Fair Value, which sits right around 120 basis points, which puts it at the tighter edge of our model's fair value range of 117 to 123 basis points.
Although note, Steven, by contrast, the 15-year basis is now at 73 basis points, with the latest move pushing it wider than our model fair value range, or its upper bound, I should say, 63 to 69 basis point.
How comfortable are you, Steven, leaning into this relative value 30 versus 15-year
The rest of this transcript — segmented and speaker-labeled, so you land on the exact moment something was said
Search every transcript — by keyword, by phrase, or by meaning, across every show Radar indexes
Trends — what is surging across podcasts, measured against its own baseline
Alerts — when a name you follow appears in a newly indexed episode
No account is needed to search Radar.
