medium · Asset-Backed Securities asset-nuances
A 10-year CMBS Interest-Only (IO) strip is being valued. If a large number of loans in the pool are 'defeased' using Treasury securities, how does this typically impact the IO investor?
- The IO strip's coupon is reduced to the Treasury yield
- It preserves the IO cash flow and increases credit quality
- It triggers the 'Rapid Amortization' of the IO notional
- It results in an immediate total loss for the IO holder
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