PT - JOURNAL ARTICLE AU - Gregory Koutmos TI - Modeling the Dynamics of MBS Spreads AID - 10.3905/jfi.2002.319323 DP - 2002 Sep 30 TA - The Journal of Fixed Income PG - 43--49 VI - 12 IP - 2 4099 - https://pm-research.com/content/12/2/43.short 4100 - https://pm-research.com/content/12/2/43.full AB - This article investigates the dynamics of mean reversion and volatility in mortgage-backed security spreads, the yield spreads between conventional 30-year mortgages and Treasury securities. The findings indicate that changes in MBS spreads follow in all instances asymmetric mean-reverting processes. They exhibit non-stationary behavior following spread increases, but they are strongly mean-reverting following spread decreases. The mean-reverting component is statistically and economically stronger, thus offsetting non-stationarity. Volatility is time-varying, depending on past innovations, past volatility estimates, and the level of past spreads. Its behavior is asymmetric, rising more in response to positive innovations.