Companion bonds, also known as support or companion tranches, assimilate excess principal payments during high prepayment speeds and defer receipt of principal payments during low prepayment velocities, reducing prepayment risk. They are commonly used in scheduled amortization class and CMO tranches. The bonds’ effectiveness depends on prepayment rates staying within specified levels. Brokers can explain […]
Short selling bonds requires careful analysis of market conditions, timing, and interest rates. Shorting bonds is a negative bet against the asset’s value, and bonds likely to fall in price and rise in interest rates are good candidates. Shorting ETFs based on bonds is an alternative approach. Interest rates are crucial, and shorting long-dated or […]
Municipal bonds can be a low-risk investment option for investors, with the option of receiving periodic interest payments or waiting until the bond matures to receive all interest at once. Coupon municipal bonds differ from other municipal bonds as they do not provide periodic interest payments. The amount of interest for coupon municipal bonds is […]
Fixed rate bonds have a specific interest rate for the life of the bond, while floating rate bonds fluctuate. Conservative investors prefer fixed rates for easier planning and to avoid sudden changes in the economy. Issuers prefer fixed rates for easier interest calculations. Some investors prefer floating rates for the potential of higher returns. The […]
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