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The rate volatility created by fast-rising inflation, now approaching 8% annualized, and the opposing flight to quality sparked by the war in Ukraine, is complicating an already challenging execution environment in the private-label securities market. 

Into March of this year, according to multiple market experts, the nonagency secondary market has been digesting a large backlog of mortgage collateral that was locked and originated last year during a much lower-rate environment than exists today. Most of the mortgages securitized in January and February and into March of this year, according to those observers, were originated last year at rates in the high 2% to low 3% range but are hitting the market this year at a time when rates have been climbing, reachin g past 4% recently. 

If that sounds like a perfect storm, add yet another jolt in the form of a 0.25% increase to the Federal Reserve’s benchmark federal funds rate announc ed this week, lifting it off near zero — with some six additional rate hikes planned yet for the balance of this year, until the benchmark rate reaches nearly 2%. (And three more hikes are planned for 2023.)