For the following questions, please focus on the three parts in the red boxes, which contain information on 30-year Fannie Mae (FNMA) passthroughs. [1-2 paragraphs per question) In the left-most box, we see some of the key characteristics of the outstanding coupons, such as WAC, WALA, Average Loan Size, or Average Life (AL). We are also provided with prices, yields, and yield spreads relative to Treasury bonds. a) What is the difference between the columns "Bond" and "WAC"? Why is WAC higher than Bond? What does the difference between the two represent? b) Average loan size is lower for higher coupons. Why do you think that is? (Hint: there is another data column in the same box that should back up your explanation.) c) Is the reported yield (or the yield spread to Treasuries) a good measure to decide which of these MBS coupons you may want to invest in? What are its shortcomings? MBS Prices/Spreads (July) Piwe and Changes 1 Day 1W Last Chg Chg Sprd Yield UST AL 270 9.9 Avg Bond WAC WALA Lnsz ENMA 30 25 3.10 3.0 3.60 260 3.3 4.00 13 245 4.0 4.50 31 235 4.95 42 225 5.0 5.65 5.5 6.11 63 200 6.0 6.63 58 197 6.5 7.21 67 178 ao ofercici 8.8 6.7 4.9 4.1 3,07 3.02 2.96 2.76 2.66 2.22 2.09 2.17 2.34 87 104 141 167 178 165 161 173 179 95-13 -0-08 -0-18+ 99-24+ -0-06 0-12+ 103-31 -0-02 |-0-06+ 105-03+ -0-01 -0-03 106-18 -0-00+ -0-00 -107-20+ 0-00 -0-00+ 103-08+ 0-01+ 0-00+ 103-23+ -0-01+ -0-02 111-06+ 0-00 -0-01 2.7 2.5 3.0 oina 0 O- 2 Hoote 2.0 1 CICE 2.5 3.0 3.5 40 NOE ONO 2.60 3.10 3.45 3.92 4.48 220 120 200 165 130 19 129 5.1 4,5 3.5 3.1 2123 2.11 1.82 1.77 1.79 107 111 113 118 127 Vicer 98-26 -0-04 -0-10 101-16 -0-03 -0-07 103-23 -0-00+ -0-01+ 104-30+ 0-00+ -0-02+ 105.27 -0-02 hi - For the following questions, please focus on the three parts in the red boxes, which contain information on 30-year Fannie Mae (FNMA) passthroughs. [1-2 paragraphs per question) In the left-most box, we see some of the key characteristics of the outstanding coupons, such as WAC, WALA, Average Loan Size, or Average Life (AL). We are also provided with prices, yields, and yield spreads relative to Treasury bonds. a) What is the difference between the columns "Bond" and "WAC"? Why is WAC higher than Bond? What does the difference between the two represent? b) Average loan size is lower for higher coupons. Why do you think that is? (Hint: there is another data column in the same box that should back up your explanation.) c) Is the reported yield (or the yield spread to Treasuries) a good measure to decide which of these MBS coupons you may want to invest in? What are its shortcomings? MBS Prices/Spreads (July) Piwe and Changes 1 Day 1W Last Chg Chg Sprd Yield UST AL 270 9.9 Avg Bond WAC WALA Lnsz ENMA 30 25 3.10 3.0 3.60 260 3.3 4.00 13 245 4.0 4.50 31 235 4.95 42 225 5.0 5.65 5.5 6.11 63 200 6.0 6.63 58 197 6.5 7.21 67 178 ao ofercici 8.8 6.7 4.9 4.1 3,07 3.02 2.96 2.76 2.66 2.22 2.09 2.17 2.34 87 104 141 167 178 165 161 173 179 95-13 -0-08 -0-18+ 99-24+ -0-06 0-12+ 103-31 -0-02 |-0-06+ 105-03+ -0-01 -0-03 106-18 -0-00+ -0-00 -107-20+ 0-00 -0-00+ 103-08+ 0-01+ 0-00+ 103-23+ -0-01+ -0-02 111-06+ 0-00 -0-01 2.7 2.5 3.0 oina 0 O- 2 Hoote 2.0 1 CICE 2.5 3.0 3.5 40 NOE ONO 2.60 3.10 3.45 3.92 4.48 220 120 200 165 130 19 129 5.1 4,5 3.5 3.1 2123 2.11 1.82 1.77 1.79 107 111 113 118 127 Vicer 98-26 -0-04 -0-10 101-16 -0-03 -0-07 103-23 -0-00+ -0-01+ 104-30+ 0-00+ -0-02+ 105.27 -0-02 hi
