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

Question

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If the yield on mortgage-backed securities was abnormally low compared to Treasury bonds, a hedge fund pursuing a relative value strategy would buy the Treasury and short sell the mortgage-backed securities. This is because the hedge fund believes that the mortgage-backed securities are overvalued compared to the Treasury bonds, and expects the prices to move closer together. By buying the Treasury bonds and short selling the mortgage-backed securities, the hedge fund would profit from the expected price convergence.

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