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Types of Bonds

CMO Settlement Dates and Payment Dates

Investors who purchase CMOs at issuance—the “issue date”—may find that their transaction takes up to a month to “settle” because of the time required to assemble the collateral, deposit it with the trustee, and complete other legal and reporting requirements. In the secondary market, CMO transactions typically settle in three business days.

Because payments to CMO investors depend on the collection and distribution of payments made by the holders of the underlying mortgage loans, a payment delay occurs when the security is first purchased. “Payment dates” for CMO tranches are defined in the prospectus and are usually stated as the 15th or 25th day of the month following the record date. Depending on when the CMO transaction settles, the investor may have to wait up to two months for the first payment, but this delay is factored into the yield quoted at the time of purchase. Once the first payment is received, future payments will be made monthly.

 

All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association from our membership and other sources believed by the Association to be accurate and reliable. By providing this general information, the Securities Industry and Financial Markets Association makes neither a recommendation as to the appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions.