• Is the principal only derivative of a credit structure. Typically, it is found in CMO deals.

 Embedded terms in definition
Principal only
 Referenced Terms
 Mortgage backed securities: The pass-throughs issued by Ginnie Mae are referred to as Mortgage Backed Securities.Securities backed by a Pool of mortgage loans.Is a broad term which encompasses both generic and Pool specific securities predicated on real property. The term also refers to private label or agency securities, pass-throughs, or derivatives such as Collateralized Mortgage Obligations. It can refer to the Over the-Counter options on mortgage backed securities as well. These mortgage backed securities are viewed as either plain vanilla or exotic. Some of the more common issues are:
  • Accrual or Accretion Bond,
  • ARMs,
  • Companion or Support,
  • Constant Maturity Treasury (CMT),
  • Floaters,
  • Gnomes,
  • Gold,
  • Inverse Floaters or Reverse Floaters,
  • IO or Interest Only,
  • IO-ette or IOette,
  • Jump Bonds,
  • Jump Z,
  • Mega,
  • PAC PO,
  • Pass Throughs,
  • Planned Amortization Class,
  • PO or Principal Only,
  • Reverse TAC,
  • Scheduled Bonds,
  • Stripped Mortgage Backed Securities,
  • Super Floater,
  • Super PAC,
  • Super PO,
  • Support,
  • Targeted Amortization Class,
  • VADM
  • Z Bond, and
  • Z PAC.
There are other types and the list is growing because of the unique nature of these instruments.

 Principal only: Abbreviated Po. A mortgage-backed security in which the holder receives only principal cash flows on the underlying mortgage pool. The principal-only portion of a stripped MBS. For PO securities, all of the principal distribution due from the underlying collateral pool is paid to the registered holder of the stripped MBS based on the current face value of the underlying collateral pool.

 Super po: Is a security that acts like a support instrument to Planned Amortization Class (PAC) and Targeted Amortization Class (TAC) bonds. Yields on these double-duty securities can fluctuate greatly depending on the actual prepayment history. Very high prepayments against the underlying PACs and TACs can quickly boost Super Po yields.

 Related Terms
 Super po

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