Create an argument related to mortgage-back securities (MBS) that either supports or does not support that the benefits outweigh the costs. In what ways is the trading of MBS similar and different from trading of corporate bonds?

In recent years, debate has raged over the trading of Mortgage-Backed Security (MBS). Some argue that it is more profitable than its costs. Others claim it is too risky or costly. MBS supporters argue that MBSs offer investors higher yields than conventional corporate bonds because they are backed with mortgages and not just loans. This opens up more markets, as well as liquidity. MBSs can also be purchased and sold easier than any other securities. MBSs are also able to reduce systemic risks due to the diversification they provide. This helps prevent defaults and any unexpected changes in interest rates that could be detrimental.

These investors are not without their critics. Some argue that MBS investing can lead to credit loss or penalties, which could result in a reduction of the potential financial gains. MBSs are also less safe than corporate bonds, which provide some transparency about the financial health of the company that is issuing them. This is because information regarding borrowers who used their mortgages isn’t always available.

MBS trading and corporate bond trading share many similarities. Both involve selling bonds to make profit, regardless of the situation. There is a major difference in how the securities are traded. While corporate bonds can only be issued to a single entity such as corporation, government agency mortgage-backed securities pools multiple individual loans and creates broader asset classes regardless of any challenges.