U.S. MBS Index Overview The U.S. Mortgage Backed Securities (MBS) Index covers agency mortgage-backed passthrough securities (both fixed-rate and hybrid ARM) issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). Introduced in 1986, the GNMA, FHLMC, and FNMA fixed-rate indices for 30and 15-year securities were backdated to January 1976, May 1977, and November 1982, respectively. Balloon securities were added in 1992 and removed on January 1, 2008. 20-year securities were added in July 2000. On April 1, 2007, agency hybrid adjustable-rate mortgage (ARM) passthrough securities were added to the U.S. MBS Index. Hybrid ARMs are eligible until 1 year prior to their floating coupon date
Index Composition as of 12/31/2007
Hybrid ARM 9.3%
Fixed-Rate MBS 90.7%
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<14> Key statistics and returns
TICKERS Total Return Index Value: LUMSTRUU Since Inception Total Return: LUMSSIUU Month to Date Excess Return: LUMSER Market Value: LUMSMVU Yield to Worst: LUMSYW Mod. Adj. Duration: LUMSMD Returns Mod. Adj. Duration: LUMSRMD Average OAS: LUMSOAS Maturity: LUMSMAT
POINT (Portfolio and Index Tool) Long Name: US MBS Short Name: mbs
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Sector Breakdown as of 12/31/2007 GNMA 15 Year 0.3%
Conv. 15 Year 13.9% Conv. 20 Year 3.2% GNMA 30 Year 8.9% Hybrid ARMs 9.3%
Conv. 30 Year 64.4%
Pricing and Related Issues Sources & Frequency
MBS bonds are priced by traders on a daily basis, with generic prices derived from these marks. The fixed-rate aggregates included in the index are priced daily using a matrix pricing routine based on trader TBA price quotations by agency, program, coupon, and WALA. Hybrid ARM bonds are OAS priced on a weekly, mid-month and month-end basis by traders, with daily subaggregate prices (narrower subsets of the hybrid aggregates used to determine index eligibility) derived from these spread levels and market movements. For details on Hybrid ARM subaggregates, please see the U.S. Hybrid ARM Index factsheet.
Timing
3:00 pm (New York time) each day. If the last business day of the month is a public holiday in the U.S. market, prices from the previous business day are used.
Bid or Offer Side
Bonds in the index are priced on the bid side.
Settlement Assumptions
MBS passthroughs (both fixed-rate and Hybrid ARMs) are priced for Public Securities Association (PSA) settlement in the following month and discounted back to same-day settlement at the mortgage repurchase rate.
Verification
The primary price for each security is analyzed through both statistical routines and scrutiny by the research staff. Significant discrepancies are researched and corrected, as necessary. On occasion, index users may also challenge price levels, which are then reviewed by the pricing team. Prices are then updated as needed using input from the trading desk.
Contacts New York [email protected] +1-212-526-7400
March 2008
London [email protected] +44-207-102-2220
Tokyo [email protected] +81-3-6440-1770
Hong Kong [email protected] +852-2252-6230
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U.S. MBS Index Global Family of Indices Rules for Inclusion Amount Outstanding
Pool aggregates must have at least USD 250 million current outstanding. Fixed-rate pool aggregates are comprised of individual TBA deliverable MBS pools mapped on the basis of agency, program, coupon, and origination year of the pool. Hybrid ARM Subaggregates that are used to price the index have no minimum liquidity, but must be part of an aggregate that is larger than USD 250 million.
Maturity
Pool aggregates must have a weighted average maturity of at least 1 year. Hybrid ARM Pools/Aggregates must have at least 12 months remaining in the security’s fixed-rate term prior to its conversion to a floating rate coupon.
Coupon
Fixed-rate in half percent increments; Hybrid ARMs in quarter coupon buckets. Hybrid ARM pools are index-eligible only when the pool pays a fixed-rate coupon. Hybrid ARM pools within a subaggregate can range between plus or minus 0.125% from each quarter coupon increment. Fixed-rate quarter coupons were dropped on January 1, 1999.
Currency
Denominated in USD.
Market of Issue
SEC-registered, fully taxable issues.
Security Types
Included: Agency MBS: GNMA, FHLMC, FNMA 30-year, 15-year, 20-year 3/1, 5/1, 7/1, and 10/1 Hybrid ARMS (as of April 1, 2007)
Paydowns
Paydown estimates are made on the first business day of the month using the previous month’s factor. This estimate and actual paydowns are updated on the 16th business days of the month.
Excluded: Non-agency (whole loan) collateral and jumbos TBAs Collateralized mortgage obligations (CMOs) Floating ARMs GPMs, Buydowns, graduated-equity, and project loans Manufactured home mortgages Prepayment penalty collateral 10-year securities Balloons
Rebalancing Frequency
The composition of the Returns Universe is rebalanced monthly at each month end and represents the set of bonds on which index returns are calculated. The Statistics Universe changes daily to reflect issues dropping out and entering the index, but is not used for return calculation. On the last business day of the month, the composition of the latest Statistics Universe becomes the Returns Universe for the following month.
Index Changes
During the month, indicative changes to securities (e.g. amount outstanding) are reflected in both the Statistics and Returns Universe of the index on a daily basis. These changes may cause bonds to enter or fall out of the Statistics Universe of the index on a daily basis, but will affect the composition of the Returns Universe only at month-end when the index is rebalanced. During the month, the MBS pool aggregates may see changes in amount outstanding due to paydowns and new production among their underlying pools. However, beginning of the month weights are used to aggregate performance from the MBS generic level.
Reinvestment of Cash flows
Interest and principal payments/paydowns earned by the Returns Universe are held in the index without a reinvestment return until month-end when it is removed from the index.
New Issues
Qualifying securities issued, but not necessarily settled, on or before the month-end rebalancing date qualify for inclusion in the following month’s Returns Universe.
Index History January 1, 2008 April 1, 2007 July 1, 2004 July 1, 2000 January 1, 1999 January 1, 1995 January 1, 1992 January 1, 1986 November 1, 1982 May 1, 1977 January 1, 1976
March 2008
MBS balloon issues removed from the index. Agency Hybrid Adjustable Rate Mortgage (ARM) securities added to the index. Discontinued using the implied Aaa+ rating. issues are now rated Aaa at the security level in average quality calculations. 20-year securities added. Quarter coupons securities and adjustable-rate mortgages (ARMs) dropped. Graduated-payment mortgages (GPMs) dropped for lack of liquidity. MBS balloon issues added to the index. Manufactured homes dropped for lack of liquidity. Launch of the U.S. MBS Index with performance history backfilled to January 1, 1976. FNMA 30- and 15-year MBS included in index history. FHLMC 30- and 15-year MBS included in index history. Inception date of U.S. MBS Index with the inclusion of GNMA 30- and 15-year MBS.
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