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The nominal spread is the spread between the cash flow yield and the yield on a Treasury security with the same maturity as the average life of the mortgage-backed security (MBS) or asset-backed security (ABS) under analysis. For MBS and ABS the nominal spread: A. masks the fact that a portion of the spread is compensation for accepting prepayment risk. B. has nothing to do with prepayment risk. C. assumes no prepayment risk. |