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Companion bonds Definition from Business & Finance Dictionaries & Glossaries
A class of a Collateralized Mortgage Obligation (CMO) whose principal is paid off first when the underlying mortgages are prepaid due to falling interest rates. When interest rates rise, there will be lower prepayment of the principal; therefore, companion bonds therefore contain most of the prepayment risk of a Collateralized Mortgage Obligation (CMO) .
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