Collateralized Mortgage Obligations or CMO's are a series of bonds backed by an agency and their mortgage backed securities. These investments are AAA rated and pay monthly principal and interest.
Collateralized Mortgage Obligations differ from pass through securities in that they have different types of paying bonds within the CMO. There are many types and tranches to evaluate - each with it's own bond risk.
A CMO has different payment timing risk depending on the type of bond you own. Some offer more protection than others from prepayment or extension risk. These bonds have a more predicatable duration to the bondholder vs. a pass through agency bond. Some CMO's can pay off faster than others.
Collateralized Mortgage Obligations are generally meant for institutional investors or wealthy bond investors. The money invested, while earning monthly income - can take a while if interest rates rise. When interest rates rise, a these bonds will pay slower. The refinancing that normally can happen with mortgage pools will slow down or stop when interest rates or bond yields rise.
Collateralized Mortgage Obligations differ from pass through securities in that they have different types of paying bonds within the CMO. There are many types and tranches to evaluate - each with it's own bond risk.
A CMO has different payment timing risk depending on the type of bond you own. Some offer more protection than others from prepayment or extension risk. These bonds have a more predicatable duration to the bondholder vs. a pass through agency bond. Some CMO's can pay off faster than others.
Collateralized Mortgage Obligations are generally meant for institutional investors or wealthy bond investors. The money invested, while earning monthly income - can take a while if interest rates rise. When interest rates rise, a these bonds will pay slower. The refinancing that normally can happen with mortgage pools will slow down or stop when interest rates or bond yields rise.