An increase in the credit spread of a mortgage backed security: A. increases the security’s value relative to Treasuries. B. does not change the security’s value relative to Treasuries. C. decreases the security’s value relative to Treasuries.
An increase in the spread means the yield of the mortgage backed security has increased relative to Treasuries so the security’s value has decreased relative to Treasuries. This would be an opportunity to buy mortgage backed securities.
