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rrao4
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Difference between OAS and CMM for TBA

May 3rd, 2017, 1:35 am

Newbie question, Can you please help me understand the difference between the OAS and the CMM for TBA mortgages?
 
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Martinghoul
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Joined: July 18th, 2006, 5:49 am

Re: Difference between OAS and CMM for TBA

May 3rd, 2017, 12:07 pm

Before comparing them, do you know what the two of these terms actually stand for?
 
rrao4
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Re: Difference between OAS and CMM for TBA

May 4th, 2017, 5:31 pm

Before comparing them, do you know what the two of these terms actually stand for?
Apologies, but my understanding is very poor, as I have just started.
OAS is the spread added to yield, to price the bonds to current market value
CMM: Is the bond equivalent rate used to price MBS to the par value
Is my understanding correct, should these to be related anyhow?
 
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riskneutralprob
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Joined: December 16th, 2005, 5:16 pm

Re: Difference between OAS and CMM for TBA

May 4th, 2017, 5:58 pm

TBAs are instruments in the market.  The set of coupons for a given collateral type (FN30, FN15, FH30, FH15, GN30, GN15, etc.) is called the coupon stack.  The first two maturities are usually the liquid points. The CMM rate is a rate that is implied by a basket of TBAs.   Usually, "bracketing coupons" and "bracketing maturities" are selected to find some 30-day rate for a given price level.  CMM100 is the CMM Rate for a par rate.  Given low coupon points are less liquid, CMM102 is also used. 
 
rrao4
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Re: Difference between OAS and CMM for TBA

May 4th, 2017, 6:40 pm

TBAs are instruments in the market.  The set of coupons for a given collateral type (FN30, FN15, FH30, FH15, GN30, GN15, etc.) is called the coupon stack.  The first two maturities are usually the liquid points. The CMM rate is a rate that is implied by a basket of TBAs.   Usually, "bracketing coupons" and "bracketing maturities" are selected to find some 30-day rate for a given price level.  CMM100 is the CMM Rate for a par rate.  Given low coupon points are less liquid, CMM102 is also used. 
Thanks Risk neutral
 
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Martinghoul
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Re: Difference between OAS and CMM for TBA

May 5th, 2017, 9:11 am

Before comparing them, do you know what the two of these terms actually stand for?
Apologies, but my understanding is very poor, as I have just started.
OAS is the spread added to yield, to price the bonds to current market value
CMM: Is the bond equivalent rate used to price MBS to the par value
Is my understanding correct, should these to be related anyhow?
Sorta...  Crucially, one is a spread, while the other is a rate.  That's one big difference right there, right?
As to them being somewhat related concepts, indeed, they should be related, by construction.
 
rrao4
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Re: Difference between OAS and CMM for TBA

May 5th, 2017, 8:59 pm

 Thanks
Also, could you please recommend any book for this. I was planning to go through Fixed Income Modeling by Claus Munk. Please let me know if you have any other recommendation.

Thanks in advance.
 
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Martinghoul
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Re: Difference between OAS and CMM for TBA

May 8th, 2017, 8:53 am

 Thanks
Also, could you please recommend any book for this. I was planning to go through Fixed Income Modeling by Claus Munk. Please let me know if you have any other recommendation.

Thanks in advance.
Are you looking for a book on Fixed Income more broadly or on mortgages specifically?