Abstract
The Government National Mortgage Association (GNMA) guaranteed its first mortgage-backed, passthrough security in February of 1970. In the past seven years, the security has become an accepted investment vehicle for many financial institutions. The first section of this paper describes several institutional aspects of the security's growth and acceptance. Because the decision to purchase the GNMAguaranteed security frequently hinges upon the relative yields available on alternative instruments, the next section details a model of the yield spread between the GNMA securities and a common alternative, Aaa corporate bonds. The third section presents the results of an empirical test of this model, using a 1971-1976 time series of data, while the last section provides a brief summary, reiterates the most
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