1. The first CMOs were structured with targeted average lives /maturities to better fit investors. These bonds were called sequentials. They worked by.

1. Having preferred cash flows that paid off no matter if borrowers made payments on time or not.
2. Having all bonds pay interest, but principal cash flows are directed to one tranche until it is paid off, then directed to the next tranche, and so on after that.
3. Having a floater/inverse structure. Floater coupon payments match current interest rate levels, while the inverse bonds stabilized the timing of payments to the floaters.
4. Creating a positively convex bond from negatively convex cash-flows.