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The first CMOs were structured with targeted average lives /maturities to better fit investors. These bonds were called sequentials. They worked by. Having preferred cash
- The first CMOs were structured with targeted average lives /maturities to better fit investors. These bonds were called sequentials. They worked by.
- Having preferred cash flows that paid off no matter if borrowers made payments on time or not.
- 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.
- 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.
- Creating a positively convex bond from negatively convex cash-flows.
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