MBS
Fixed IncomeDefinition
Mortgage-Backed Security. A bond backed by a pool of residential mortgages. Investor receives a portion of the interest and principal payments from homeowners.
Two main types: agency MBS (Fannie Mae, Freddie Mac, Ginnie Mae — implicit US backing) and private-label (no government backing — at the heart of the 2008 crisis). MBS exhibit "negative convexity" because homeowners can prepay when rates fall, leaving investors with cash to reinvest at lower rates.
Two main types: agency MBS (Fannie Mae, Freddie Mac, Ginnie Mae — implicit US backing) and private-label (no government backing — at the heart of the 2008 crisis). MBS exhibit "negative convexity" because homeowners can prepay when rates fall, leaving investors with cash to reinvest at lower rates.
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