What implications does the high proportion of non‑agency loans (93.4%) have for liquidity and secondary market demand compared to fully agency‑backed securities?

The 93.4 % non‑agency composition means the JPMorgan 2025‑7 MPR tranche behaves more like a private‑label MBS than a GSE‑backed security. Because it lacks the explicit guarantee of Fannie Mae, Freddie Mac or Ginnie Mae, investors price in both credit‑performance risk and higher pre‑payment uncertainty. In practice this translates into a much thinner secondary‑market depth: bid‑ask spreads are typically 2‑3 × wider than comparable agency issues, trade volumes are lower, and price discovery can be delayed during periods of market stress. Consequently, the pool will command a liquidity premium—higher yields relative to agency counterparts—but that premium can be volatile as investors re‑price credit and funding concerns.

From a trading perspective the security is attractive for yield‑seekers with a tolerance for liquidity risk, such as hedge funds, CLO managers, or high‑yield fixed‑income desks that can hold the position for a few months. Actionable points:

• Yield‑spread screening: Compare the current spread to the “non‑agency premium” benchmark (often 30‑50 bp over agency MBS of similar duration). If the spread is materially wider, the security may be undervalued; if it’s compressed, consider short‑position or avoid new exposure.
• Liquidity management: Use limit orders with a price buffer of at least 5‑10 bp above the quoted ask to compensate for the wider spread, and keep position size modest (≤ 5 % of the book) to avoid forced liquidation in a thin market.
• Risk hedging: Hedge interest‑rate exposure with Treasury futures or agency MBS futures, but retain a separate credit‑risk hedge (e.g., a short position in a non‑agency MBS index or a CDS on a comparable pool) because agency‑only hedges will not capture the credit‑performance component.

In short, the high non‑agency share boosts yield but depresses liquidity and secondary‑market demand. Traders should target the security only when the spread justification is clear, size the position conservatively, and employ a dual‑layer hedge that addresses both interest‑rate and credit‑performance risk.