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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (31673)	6/7/2005 5:17:31 PM
From: Knighty Tin	Read Replies (2) \| Respond to of 116555

Mish, these are very dangerous notes that offer you short term bond characteristics if rates go down and long term risk if rates go up. Basically, they are intermediate (6 to 16 years) agency products. They have several call dates. On those dates, the paper can be called away from you. And will be if rates go down. If rates have gone up, the step up note steps up your coupon payment, most commonly by half a percent. So, the typical deal is an eight year note that is callable in one year, 3 years and 6 years. As long as rates fluctuate in a moderate range, these are ok. But if rates go down a lot, you lose your yield and any appreciation. If they go up a lot, your 1/2 percent step-up will probably look pretty puny.