If the yield on mortgage-backed securities was abnormally high compared to Treasury bonds, a hedge fund pursuing a relative value strategy would

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A relative value strategy seeks to exploit price differences between related financial instruments. If mortgage-backed securities yield abnormally high compared to Treasury bonds, a hedge fund would likely buy the mortgage-backed securities (to capitalize on the higher yield) and short sell the Treasury bonds (betting that their prices will fall or underperform relative to the mortgage-backed securities), aiming to profit from the convergence of their yields.

If the Yield on Mortgage-Backed Securities Was Abnormally High Compared