Super PO

AAA

DEFINITION of 'Super PO'

A companion tranche structured as a Principal Only (PO) bond, which receives only principal payments from the underlying mortgages. A Super PO is designed to lend support to planned amortization class (PAC) and targeted amortization class (TAC) collateralized mortgage obligations (CMOs). Super POs are priced at deep discounts to par or face value, and investors eventually receive the full face value through scheduled payments and prepayments.

INVESTOPEDIA EXPLAINS 'Super PO'

The price of a super PO is very sensitive to interest rates, since they significantly influence prepayment rates on CMOs. When interest rates are low, high prepayment rates against the underlying PAC and TAC CMOs can significantly shorten the life of a Super PO, thereby boosting its yield because it is priced at a deep discount. Conversely, when interest rates are high and prepayments are below expectations, the life of the Super PO is extended and its yield is lowered.

RELATED TERMS
  1. Collateralized Mortgage Obligation ...

    A type of mortgage-backed security in which principal repayments ...
  2. Targeted Amortization Class - TAC

    A type of credit derivative that is similar to a planned amortization ...
  3. Tranches

    A piece, portion or slice of a deal or structured financing. ...
  4. Principal Only Strips - PO

    A type of fixed-income security where the holder is only entitled ...
  5. Planned Amortization Class (PAC) ...

    A class of tranche in a planned amortization class (PAC) bond ...
  6. Exchange Traded Derivative

    A financial instrument whose value is based on the value of another ...
RELATED FAQS
  1. What is the difference between a collateralized mortgage obligation (CMO) and a collateralized ...

    Both collateralized mortgage obligations (CMOs) and collateralized bond obligations (CBOs) are similar in that investors ... Read Full Answer >>
  2. Who bears the risk of bad debts in securitization?

    Bad debts arise when borrowers default on their loans. This is one of the primary risks associated with securitized assets, ... Read Full Answer >>
  3. What are the primary differences between a closed end investment and an open end ...

    The primary differences between closed-end funds and open-end funds lie in how they are structured and how they are bought ... Read Full Answer >>
  4. What do mortgage lenders use the securitization food chain?

    The phrase "securitization food chain" was made popular by director Chris Ferguson in "Inside Job," a film about the 2007-2 ... Read Full Answer >>
  5. What are the most common leveraged ETFs that track the drugs sector?

    The most common leveraged exchange-traded funds (ETFs) that track the pharmaceutical industry are the two offered by Proshares: ... Read Full Answer >>
  6. What is required to become an accredited investor in a private placement?

    The term "accredited investors" is defined by the U.S. Securities and Exchange Commission (SEC) as individuals with a net ... Read Full Answer >>
Related Articles
  1. Options & Futures

    These Financial Products Are Too Complex For The Average Joe

    Structured financial products are so elaborate that investors are unable to assess costs and risk.
  2. Retirement

    Collateralized Debt Obligations: From Boon To Burden

    CDOs were to be Wall Street's boon - instead they went bust. Find out what went wrong.
  3. Forex

    10 Cities Leading Bitcoin Adoption

    An overview of the global cities leading the way in using the virtual currency Bitcoin.
  4. Forex

    Beware of these Five Bitcoin Scams

    We look at five bitcoin scams and how to protect yourself from fraud.
  5. Investing

    Bitcoin Vs. Litecoin: What's The Difference?

    Litecoin is often referred to as "the silver to Bitcoin's gold." But what is Litecoin, and how does it compare to its more famous counterpart?
  6. Forex Education

    Why Governments Are Afraid Of Bitcoin

    Bitcoin is the first decentralized peer-to-peer payment network and cryptocurrency. Governments may fear Bitcoin because its value is determined by users and not central governments or banks. ...
  7. Forex Education

    Countries Where Bitcoin Is Legal & Illegal

    Although bitcoin has been in existence for five years, most countries still do not have consistent laws regulating the cryptocurrency. However, a few countries have banned bitcoin altogether.
  8. Stock Analysis

    Fight Volatility and Inflation with Infrastructure

    As institutional investors flock to infrastructure assets there's good reason for retail investors to follow suit.
  9. Savings

    How to Invest in Liquor (and Avoiding the Hiccups)

    Investing in liquor has been profitable for ages but there could be some hiccups along the way.
  10. Investing Basics

    What is a Foreign Institutional Investor?

    A foreign institutional investor (FII) is a person or a group of people operating or registered in a country that’s not their domicile.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center