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Mortgage Backed Securities-Targeted Amortization Classes

A type of CMO bond designed to reduce the effects of prepayment risk. Like a Planned Amortization Class (PAC), a TAC bond pays to a predetermined principal balance schedule, but the schedule is determined using a single prepayment speed instead of bands of prepayment speeds. TACs offer reasonable call protection when prepayment speeds rise above the TAC PSA speed, but unlike PACs, do not offer protection against extension of weighted average life when prepayments slow. For this reason, TACs offer higher yields than PACs.

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Portfolio valuation and risk analytics for multi-asset derivatives and fixed income.