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Mortgage-Backed Securities: Products, Structuring, and Analytical Techniques by WILLIAM S. BERLINER, ANAND K. BHATTACHARYA, FRANK J. FABOZZI

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YIELD AND SPREAD MATRICES

The most basic analysis used in evaluating structured MBS is the yield matrix or yield table. While limited in its scope and flexibility, it is quite useful in allowing traders and investors to observe the basic attributes of the security in question, as well as measure and quote its spread over market benchmarks. In the context of MBS analysis, a yield matrix is a format that allows the user to observe changes in average lives, durations, and yields under different prepayment scenarios, offering a simple but robust means of evaluating securities.
While there are many variations on yield matrices, they all typically designed to show the attributes and parameters of MBS under different prepayment assumptions. The tables are commonly constructed to show a range of prepayment assumptions on the horizontal axis. Prepayment speeds can be quoted using a variety of conventions (i.e., as CPRs, PSAs, or PPCs) as well as user-defined prepayment “vectors.” (In this context, a prepayment vector is a series of monthly CPRs that encompass a single prepayment scenario that unfolds over time. We discuss vectors in more depth later in this chapter.) The vertical axis can show a number of different parameters, including prices (giving a yield-to-price table or, in some cases, spread-to-price tables), yields (creating a price-to-yield matrix), and index levels. The table also typically shows the bond’s average life, modified duration, and principal payment “window” ...

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