Index Amortizing Note - IAN


DEFINITION of 'Index Amortizing Note - IAN'

A type of structured note or debt obligation where principal is repaid for a time interval that increases or decreases in accordance with an amortization schedule connected to a particular index, such as the LIBOR (London Interbank Offered Rate), the CMT (Constant Maturity Treasury), or the mortgage interest rate.

BREAKING DOWN 'Index Amortizing Note - IAN'

An Index Amortizing Note's maturity period extends when interest rates increase. As interest rates decline, the maturity period shortens. Index Amortizing Notes are structured to reduce the holders' interest rate risk. Despite the ability to alter the notes' maturity periods, the IAN has a specified maximum maturity date by which time any remaining principal is paid.

The maturities of index amortizing notes often act in a manner that is similar to those of collateralized mortgage obligations (CMOs) that have embedded prepayment options. As mortgage prepayment rates decline in response to increasing market interest rates, the maturity of an IAN will lengthen; as mortgage prepayment rates increase in response to decreasing market interest rates, the maturity of an IAN will shorten. As with other mortgage-backed instruments, an IAN's connection to interest rates creates a negative convexity exposure.

  1. Collateralized Mortgage Obligation ...

    A type of mortgage-backed security in which principal repayments ...
  2. Floating-Rate Note - FRN

    A note with a variable interest rate. The interest rate is usually ...
  3. Equity Linked Note - ELN

    An instrument whose return is determined by the performance of ...
  4. Contraction Risk

    The risk faced by the holder of a fixed income security when ...
  5. Extension Risk

    The risk of a security's expected maturity lengthening in duration ...
  6. Index Amortizing Swap - IAS

    An interest rate swap where the notional principal amount declines ...
Related Articles
  1. Investing Basics

    How Interest Rates Affect The Stock Market

    Whether you're buying lunch, a home or a stock, you're influenced by interest rates.
  2. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  3. Bonds & Fixed Income

    Understanding Interest Rates, Inflation And The Bond Market

    Get to know the relationships that determine a bond's price and its payout.
  4. Forex Education

    Why Interest Rates Matter For Forex Traders

    Central banks' rate changes are one of the biggest influences on the forex market.
  5. Investing Basics

    What Investors Should Know About Interest Rates

    Understanding interest rates helps you answer the fundamental question of where to put your money.
  6. Options & Futures

    Dividends, Interest Rates And Their Effect On Stock Options

    Learn how analyzing these variables are crucial to knowing when to exercise early.
  7. Bonds & Fixed Income

    The Impact Of Interest Rates On Real Estate Investment Trusts

    REITs are high-yield investments, but do they have an inverse relationship with interest rates? Find out here.
  8. Home & Auto

    Simple Ways To Invest In Real Estate

    Owning property isn't always easy, but there are plenty of perks. Find out how to buy in.
  9. Investing Basics

    Calculating The Present And Future Value Of Annuities

    Here's everything you need to account for when calculating the present and future value of annuities.
  10. Professionals

    Common Interview Questions for Fixed Income Traders

    Discover a list of potential questions and answers commonly asked in job interviews for a candidate applying for a position as a fixed-income trader.
  1. What does a cut in interest rates mean for the stock market?

    When the next Federal Reserve meeting is expected to bring interest rate cuts or increases, it is wise, as a stock investor, ... Read Full Answer >>
  2. Can hedge funds trade penny stocks?

    Hedge funds can trade penny stocks. In fact, hedge funds can trade in just about any type of security, including medium- ... Read Full Answer >>
  3. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  4. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
  5. Have hedge funds eroded market opportunities?

    Hedge funds have not eroded market opportunities for longer-term investors. Many investors incorrectly assume they cannot ... Read Full Answer >>
  6. Can hedge funds outperform the market?

    Generating returns that exceed those provided by the broader market is the goal of nearly every investor. However, the methods ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
Trading Center