It is questionable whether restrictions such as limiting the average lives of a corporate's investment portfolio to two years will allow the corporates to generate enough income to fund their operations never mind offer a competitive return on investments to member credit unions.
the average lives of mortgage-backed securities both fixed and variable will extend.
Finally, the regs put so much emphasis on NEV and average lives but I think they completely miss the true cause of the corporate mess: credit.
In general, higher coupon pass-throughs have shorter average lives than lower coupons.
In declining interest rates, increases in prepayments shorten the expected average lives of these securities.
Also, when assessing the performance of this sector it is crucial to understand that there are different types of mortgage securities with a wide range of coupon rates and expected average lives. They perform differently and should be evaluated accordingly, with respect to Treasuries of different comparable average lives.
Refinancing dramatically shortened average lives of pass-throughs of all coupons.
The fluctuation of prepayments that results in varying average lives of PACs is structurally absorbed by support classes.
Having gone through at least four waves of refinancing in the past two years, high-premium coupons have expected average lives of roughly between one and three years.
Again, their average lives will extend only moderately because of still-rapid prepayments.
If rates were to fall, prepayments would accelerate, and it would further shorten low-premium coupons' average lives. Their annual returns in such an instance would drop, becoming comparable only to money market instruments.