Collateralized mortgage obligations (CMOs) are generally perceived to have

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CMOs have a high degree of prepayment risk because they are backed by a pool of mortgages and when homeowners prepay their mortgage, it affects the cash flows of the CMOs. While there is some default risk, it is generally lower than other types of mortgage-backed securities because CMOs are structured to distribute the credit risk across different tranches. CMOs also have a different interest rate risk profile than money market securities, as they are longer-term fixed-income securities.

Collateralized Mortgage Obligations (CMOs) Are Generally Perceived to Have