Support tranche

CFA Level I Glossary

In a CMO, the support (or companion) tranche absorbs prepayment variability so that PAC tranches can keep a more stable payment window within bands. When prepayments are very fast or very slow, support tranches take the brunt of contraction or extension. Higher yield compensates for that instability. Treating every CMO tranche as equally protected like a PAC is wrong.

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