Fixed Income Trading - MBS ... what happens to price when...

HuniBunz's picture
Rank: Monkey | 44

Alright... here's my question...

Let's say you buy 1MM of spec pool 30 year Fnma 3.5 outright @ 99-21 ( for example)

The original face is 1MM
Current face is 630,000

What happens to the price of the bond when the loan holder lowers the loan face value 300,000 .... does the bond become more valuable?

meaning.... If the next time you buy 1MM 30Yr Fnma 3.5 (with current face of 300,000) ... would the price be closer to par or lower than 99-21???