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Originally Posted by TromboneAl
Would you say that the GNMA fund would lose more than say the Long Term Bond Index in a rapidly rising interest rate environment?
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It's really hard to say. Part of the problem is that GNMA's (like all structured securities) have a unique type of interest rate risk. Most mortgage bonds are prepaid to some degree. As rates have been falling the last several years, the speed at which prepayments happed has increased. Should we see a sustained increase in rates, most prepayments will stop, because who wants to re-fi at a higher rate? The metrics used to measure this lengthening of maturity are a little much to go into here (I don't feel like typing that much) The short answer is that they're pretty close.
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