Super PO

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.

BREAKING DOWN '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. Hedge

    Making an investment to reduce the risk of adverse price movements ...
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. Retirement

    Dollar Shave Club Review: Is It Worth It?

    Learn about the business model of the Dollar Shave Club, and find out whether the razor subscription company is a worthwhile investment.
  4. Term

    The Implications of Nonfarm Payroll

    The nonfarm payroll is a key economic indicator that’s closely monitored by analysts and investors around the world.
  5. Investing Basics

    Understanding Real Estate

    Real estate is an encompassing term that refers to land, the buildings on that land, and its natural resources, such as crops and minerals.
  6. Investing Basics

    How To Value A Real Estate Investment Property

    Two common methods for real estate valuation are the discounted net operating income and gross income multiplier approaches.
  7. Investing Basics

    How to Calculate ROI For Real Estate Investments

    When it comes to real estate investments, there are two important ROI calculations to know.
  8. Investing Basics

    Understanding Alternative Investments

    An alternative investment is one that’s not among the three traditional asset types – stocks, bonds or cash.
  9. Economics

    Ways To Earn Bitcoins

    The most popular way to obtain Bitcoins is to buy them on a Bitcoin exchange. But that’s not the only way.
  10. Investing News

    Why You Should Be Buying Stocks, Not Going to Cash

    Hedge fund managers are buying up the shares of big companies. What do the managers know that we don't?
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 is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  4. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Full Answer >>
  5. 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 >>
  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 >>
Hot Definitions
  1. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  2. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  3. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  4. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
  5. Godfather Offer

    An irrefutable takeover offer made to a target company by an acquiring company. Typically, the acquisition price's premium ...
Trading Center