In a rising interest rate market, there will be a decrease in the market value of a typical mortgage-backed bond or pass-through security secured by fixed-rate home mortgages.
A pool of fixed-income securities that are supported by a collection of assets is known as a pass-through security, also known as a pay-through security. Each individual security in the pass-through pool is a representation of a substantial number of underlying debts, such as hundreds or thousands of home mortgages or auto loans, respectively.
The monthly interest payments on these debts are collected from the issuers by a service intermediary, and then, after deducting a charge, the servicing intermediary channels or passes them through to the investors.
Mortgage-backed securities make up the vast majority of all pass-through investments.
Two of the dangers that investors in the pass-throughs face are defaulting on the underlying debt and early payback of the loans that underlie the pass-throughs.
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