Glossary
Agency MBS
These include MBS issued or guaranteed by Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Government National Mortgage Administration (Ginnie Mae). Agency MBS are backed by the full faith and credit of the U.S. government, which gives them the highest credit rating granted by the credit ratings agencies.
Basis Point refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.
Basis Points
A broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).
Bloomberg Barclays US Aggregate Bond Index
Cuspy Coupons
A minor decrease in rates is likely to cause substantial prepayment of mortgages. These securities are most susceptible to negative convexity.
Dow Jones The DJIA or “The Dow” is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
Dow Jones Industrial Average
Duration
Duration is a measure of the relationship between interest rates and price for a fixed income security. Positive duration refers to a relationship whereby prices decline as interest rates rise, while negative duration refers to a relationship whereby prices increase as interest rates rise.
Factor Models are financial models that incorporate factors (macroeconomic, fundamental, and statistical) to define a security’srisk and returns.
Factor Models
MBS IOs represent the interest portion of the MBS.
MBS IOs
MBS
Mortgage-backed securities are fixed-income instruments that represent an interest in a pool of mortgages.
MBS POs represent the principal portion of the MBS.
MBS POs
Nasdaq is a global electronic marketplace for buying and selling securities.
NASDAQ
Option-adjusted spread represents the yield spread that is added to the benchmark yield curve to price a security with an embedded option.
OAS
The PCE price index is used primarily for macroeconomic analysis and forecasting. The index is the Federal Reserve's preferred measure of inflation.
PCE Price Index
Positive carry is a strategy that generates current income.
Positive Carry
Residential mortgage-backed securities are fixed-income instruments that represent an interest in a pool of residential (i.e., not commercial) mortgages.
RMBS
The Russel 2000 Index is a stock market index that measures the performance of the 2,000 smaller companies included in the Russell 3000 Index.
Russel 2000 Index
The S&P 500 Index is a market capitalization-weighted index of the 500 largest U.S. publicly traded companies.
S&P 500 Index
Stripped MBS represent interest in a pool of mortgages, the cash flow from which has been separated into interest and principal components.
Stripped MBS
ICE U.S. Treasury 7-10 Year Bond 1X Inverse Index is designed to provide the inverse of the daily return of the ICE U.S. Treasury 7-10 Year Bond Index (IDCOT7). ICE U.S. Treasury 7-10 Year Bond Index tracks the performance of US dollar denominated sovereign debt publicly issued by the US government in its domestic market. Qualifying securities of the underlying index must have greater than or equal to seven years and less than 10 years remaining term to final maturity as of the rebalancing date, a fixed coupon schedule and an adjusted amount outstanding of at least $300 million.
US Treasury 7-10 Year Bond Inverse Index
A measure of the ex-ante return to a holder of the security.