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Standardizing Yields on Mortgages and other Securities
Author(s) -
Kaufman George G.,
Morgan George E.
Publication year - 1980
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00210
Subject(s) - coupon , bond , maturity (psychological) , basis point , economics , econometrics , financial economics , monetary economics , finance , political science , law
The existence of a difference between the yield to maturity of a coupon bond and the expected holding period return on a coupon bond, referred to as coupon bias, is well recognized. This paper discusses the nature of coupon bias for mortgages, estimates the magnitude of the bias under different assumptions about the characteristics of the mortgage security and the term structure, and compares the magnitude of the coupon biases on mortgages and comparable coupon bonds. For a moderately upward sloping term structure at current levels of interest rates, coupon bias for a thirty‐year mortgage can be on the order of 75 basis points.