Abstract
For example, stable intermediate PACs on par collateral might trade 50 to 80 bp “off the curve”; broken PACs with premium collateral might carry an additional discount of 50 to 100 bp; support tranches would trade wider still. Investors persist in attempting to adjust these nominal spreads for prepayment risk in order both to compare a security to other similar ones and to compare the different sectors. These comparisons are really “rule of thumb” exercises, partly for lack of familiarity with, availability of, or inconvenience of the quantitative analytical tools required for accurate analysis.
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