关于MBS市场的基本知识.docx

关于MBS市场的基本知识.docx

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关于MBS市场的基本知识

MBS=Mortgage-BackedSecurities,andtheuniverseofMBSisvast,itishoweverreservedbymarketparticipantstodenotethepass-throughmortgagebonds（agencypass-throughandnonagencypass-through）. 

CMBS=CommercialMortgage-BackedSecurities,whicharetrustcertificates（bonds）backedbyapoolofcommercialmortgageloans.Thecertificatesaretranchedonthebasisofprepaymentandcredit.

CMO=CollateralizedMortgage-backedObligations,whicharepoolofpass-throughmortgagebondstranchedtoreflectthedegreeofsensitivitytoprepayment（particularly,agencyCMO）.

ABS=AssetBackedSecurities,forexamplehomeequityloans（HEL）,creditcards,etc.Thesearesecuritiesbackedbyreceivables[payments]thatareeithersecured（HEL）orunsecured（creditcard）,tranchedonthebasisofprepaymentanddefaultrisks.

CDO=CollateralizedDebtObligation,forexample,ABSCDOwhichconsistofaportfolioofdifferentABSbonds,andthepaymentstotheholdersofthesetrustcertificatesarederivedfromthecashflowsoftheABSbonds.

CBO=CollateralizedBondObligation,forexamplehighyield[emergingmarket]CBOwhichconsistofaportfolioofdifferenthighyield[emergingmarket]bonds.

CLO=Collateralized[leveraged]LoanObligationwhichconsistofaportfolioofdifferentleveragedloans.

CDOsconsistoftwotypesofstructures:

CashCDO-Madeupofthestandarddebtobligations 

SyntheticCDO-AsynthesizedportfolioofCDO/Bonds/ABSusingTotalReturnsSwapsandCDS

StructuredProductsarealsooriginatedinoneoftwoways:

BalanceSheetCDO/CLO/CBO...-thereferenceassetsfortheSDOportfolioaretakenfromacompany/firm'sbalancesheet

ArbitrageCDO/CLO/CBO...-thereferenceassetsareboughtbyafirmorconduitorSPV（SpecialPurposeVehicle）withaviewtorepackagethemandsellthemonasthestructuredproduct

CDOsalsocomeintwomanagementstyles:

StaticCDO-Thereferenceassetsareboughtandthenarekeptuntouchedforthetermoftheproduct

ManagedCDO-Thereferenceassetsarebought（theportfolioisrampedup）andthentheCDOmanagerwouldaltertheportfolioastheyseefit

CFO=CollateralizedFundObligation,muchlikeaCDO,buttheunderlyingpoolarehedgefundsharesoroneormorefundsofhedgefunds.

CEO=CollateralizedEquityObligation,theunderlyingpoolconsistsofaportfolioofindividualstocks,preferredstock,stockETFs,indexes,orequityderivatives.

LiketheotherCxOstructures,thesebasicallycreatea"holdingcompany"balancesheettoprovidealeveraged/OTMcalloptiontotheequitytranche,ahigh-rateddebtclaimtotheAAAtranche,andmezzanine"callspread"liketranchesforthebondsinbetweenwithniceportfoliocharacteristics. 

AssetBackedSecurities（ABS）aresecuritiesforwhichtheinterestandprincipalarepaidusingcashflowsderivedfromaportfolioofunderlyingassets.Portrayedinadiagram,ontheonesideareassetsgeneratingcashflows（generallyreceivables）anddisplayingacertaindegreeofhomogeneityandontheothersidearethesecurities:

Sellingofassetsinterest+principal

undelyingasstes<======================>issuer<=======================>ABS

PaymentsABSissueproceeds

Toputitanotherway,theunderlyingassetsaresaidtobesecuritized,i.e.convertedintosecurities.Securitizationenablesassetsthatarenotveryliquidtobeconvertedintonegotiablesecurities.Besidesmakingilliquidassetsliquid,wewilldealfurtheronwiththemainmotivatingfactorsbehindthistypeofoperation.Bywayofillustration,themostcommonsecuritizedassetsaremortgageloans（MortgageBackedSecuritiesorMBS）,commercialmortgagedebt（CMBS）,aircraftleases,corporatebonds&loans（CBO,CLO,CDO）,commercialdebt（tradereceivables）,receivablesensuingfromtheuseofcreditcards（creditcardreceivables）,Americangovernmentloanstostudents（studentloans）andfuturerevenues（suchas,forinstance,thefuturerevenuesofagroupofpubs,atelecomoperator,petrolextractionorinvestmentfundmanagementfees）.

MBS=MortgageBackedSecurities,inwhichCMOCollateralMortgageObligationisoneoftheproducttypeundertheMBSumbrella.

Asfarasthecashflowpatternsareconcern,MBScanbedividedintotwomajorcategories:

Pass-thruandstructureproduct;

Pass-thruproductspasstheprincipalandinterestpaymenttotheinvestorsaftersubtractingasmallservicingfee;

StructureproductsincludeCMO,IO/PO,....inwhichcashflowsarereallocatedintotranchessothecollaterals'prepaymentriskarenotdirectlypassedtotheinvestors.Sometranchesmighthavemoreprepaymentriskexposurewhilesomehaveless.

MortgageBackedSecuritiesBasics

[Part1]  [Part2]  [Part3]  [Part4]      [Returntotheblog]

DecipheringtheGreek

NowthattherearegraphsandMBSpricespostedperiodically,we'vereceivednumerousquestionsaboutthesignificanceofthedata.Thisisintendedtobeabriefcompaniontothe dailymortgagerateanalysis thatwill"getyouby"untilwereleasemorecomprehensiveliteratureonthetopic.Tosomeofyouthiswillbeoldhat,butI'llstartcompletelyatthebeginningsoitisaccessibleeventothefirsttimer.Keepinmindthiswillbebrutallyoversimplifiedduetothefactthatamoredetailedversionwillbereleasedatalaterdate.

WhatisMBS?

AnytimeyouseemewriteMBSinthisblog,oranywhereelseforthatmatter,Iamalwaysgoingtobereferringto MortgageBackedSecurities.ThesearebondsthathaveaPRICEandaYIELDjustliketreasuries.ThePRICEalwaysreferstothecostofbuying$100ofthatparticularbond.Forinstance,ifthepriceofabondis101.00,thenaninvestorwouldpay$101.00,andinexchange,wouldthenownonly$100.00worthofthatbond.Sowhypaymoreorless?

Inaword:

 YIELD.Yieldistherateofreturnpaidonthatbondovertime.Therearemultipledifferenttypesofbonds,andeachbondhasacertainyieldthatitpays.Youwillsometimeshearmerefertoyieldas"coupon"or"issue."Asyoumightguess,thehighertheyield,themorethebuyerwillmakeovertime,sothemorethebuyeriswillingtopay.Forinstance,attheverymomentthistutorialisbeingtyped,acertainclassofMBS（abond）witha5%yieldcosts$97.25.Soforevery$97.25youspend,youget$100dollarsofbond,payingyoubackata5%rateofreturn.Anotherbondinthesameclasswithayieldof6.5%iscurrentlycosting$103.10.Soyou'dhavetopayoverthefacevaluetogetthe$100dollarstopayyoubackat6.5%.Sohopefullythisillustratesaswemovefromcoupontocoupon（i.e.5%to5.5%to6.0%to6.5%）thatthecostofownershipwillgethigher,butsowilltheyield.

NowitgetsconfusingbecauseallthistimeI'vebeentellingyouthat"asPRICEgoesup,YIELDgoesdown."Well,itdoes,butonlywhenwe'retalkingaboutonecouponatatime.Talkingaboutthefullspectrumof couponrates meansthatnaturallythepricewillbehigherwhenwe'retalkingabouthigheryields.Butthatconceptisnotcentraltobondanalysis.WeareonlyeverinterestinPriceVS.Yieldasitrelatestosupplyanddemand,andevenifweareconsideringseveralcouponrates,wewillonlyanalyzeoneatatime.

Inthisway,whenpricegoesup,yieldgoesdown.Why!

?

Becauseifthebond'scouponrateis6.5%andthepricedropsfrom103.10to102.10,nowtheinvestorthatisbuyingitgetsmoreforhismoney,plainandsimple.Sobecausehis1milliondollarsnowbuysalmost1%MOREthanitdidatthehigherprice,theyieldonthatinvestmentwillbehigheraswell!

Ifthisdoesn'tclickforyou,pleasespendsometimegooglesearchingbondsortryPIMCO's BondBasics.I'mnotsayingthistobepedanticorderogatory,butratherbecausetheconceptrequiresimmersionforsome,andthereisadefinitelearningcurvethatcannotbeachievedsimplybytryingtodigestmydefinitions.Movingon...

MortgageBackedBondsandSecuritization

[Part1]   [Part2]   [Part3]   [Part4]       [Returntotheblog]

SoMBS'sarebonds!

Wheredotheycomefrom?

Grosslyoversimplifiedandleavingoutnumerousitemsthatarenotgermanetorateanalysis,MBSarethebondsthatmortgageloans areturnedintowhentheyareboughtorsold.That'satoughonetograspyourfirsttimearound.Iknowitwasforme.

Basically,BigBankwillwriteacheckforyourmortgage,sayit's$100,000. BigBankA thenhasapromissorynotesayingthatyouwillpaythemacertaininterestrateovertime（soundfamiliar?

）.ButBigBankAneedssomemoremoneytolendotherpeople...Wheretogetit?

Iknow!

Theycansellyourmortgagenotetosomeoneelseintheformofabond!

Hopefully,thatinvestoriswillingtopaysomethinglike$102,000fortherighttocollectinterestonyour$100,000loan.BigBankAjustmade$2000,andtheinvestorhassomethingthatwillhopefullypaytheminterestovertime.Rememberpricevs.yield?

Thehigheryourinterestrate,themoretheinvestorwouldbewillingtopayBigBankA.That'sYSPBaby!

Andiftheinvestorisonlygoingtopay$97,000fortheloan,thatmeansBigBankhastopaythemadiscounttobuyit,whichwasprobablypassedontoyouonline802oftheGFE!

NowYSPstartstobecomeclearIhope!

Butthere'sabigproblem!

Theinvestordoesn'twantalloftheirriskridingononeloan,sowehavetofindawayto spreadouttherisk.Becauseevenifyouonlyhavea3%chanceofdefaulting,intheeventthatyoudo,theinvestorwouldlosehishat.Sotospreadouttherisk,BigBankAcombinesyourloanwith10'stohundredsofothersimilarloanswithsimilarratesandsimilarcreditquality.

TheneitherbysellingthemdirectlytoFannieMaeandFreddieMacorbyutilizingFanniean