Collateralized Mortgage Obligations (CMOs)
Collateralized Mortgage Obligations (CMOs) are a type of mortgage-backed security (MBS). Unlike a mortgage pass-through, in which all investors participate proportionately in the net cash flows from the mortgage collateral, with a CMO, different bond classes are issued, which participate in different components, called tranches, of the net cash flows. A CMO is any one of those bonds. The tranches are structured to each have their own risk characteristics and maturity range. In this way, investors can select a bond offering the characteristics which most closely meet their needs. Collateral for the securitization may represent a pool of mortgages, but it is often a mortgage pass-through.
Agency and Private CMOs offer investors the highest AAA quality yields available in the market in exchange for flexible timing of principal return.
Financial professionals may obtain more information including current offerings by calling (800) 327-1546.
Please consult your financial advisor prior to investing any money in these or other products. These products are offered through many but not all broker-dealers. This information does not constitute an offer to sell or a solicitation of an offer to buy the securities, nor shall there be any sale of those securities, in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful. Certain products are offered by prospectus or offering circular only. Product suitability must be determined for each individual investor.
CMOs are complex securities and are not suitable for all investors. The average life and yield of a CMO will fluctuate depending on the actual prepayment experience of the underlying mortgages and changes in current interest rates. If CMOs are sold in the secondary market prior to maturity, the proceeds received may be more or less than the original amount invested.