Mortgage-Backed Security (MBS) Instrument and Market Features
Free CFA Level I lesson in Fixed Income. 10 min read, ~1,547 words.
Prepayment risk has two sides: contraction (rates fall, refi accelerates) and extension (rates rise, prepayments slow). Pass-throughs distribute pro-rata; CMOs carve cash flows into tranches that redistribute, not eliminate, prepayment risk. Sequential-pay retires tranches in order; PAC tranches follow a stable schedule while support tranches absorb prepayment volatility. Agency RMBS...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
- MBS instrument and market features
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