Parallel shift in the yield curve

A shift in economic conditions in which the change in the interest rate on all maturities is the same number of basis points. In other words, if the three month T-bill increases 100 basis points (one %), then the 6-month, 1-year, 5-year, 10-year, 20-year, and 30-year rates all increase by 100 basis points as well. Related: Non-parallel shift in the yield curve.

Parallel Shift in the Yield Curve

A change in the yield curve for bonds with different maturities in which the changes in yields occur evenly. For example, given a yield curve for bonds with one-year, five-year, and 10-year maturities, a parallel shift in the yield curve occurs when the yields for all three bonds increase 10 basis points each. See also: Nonparallel Shift in the Yield Curve.

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A high-risk mortgage security is defined as any mortgage derivative product that has (1) an expected weighted-average life greater than eight years (i.e., "average life" test); (2) an expected weighted-average life that extends by more than four years or shortens by more than five years assuming immediate and sustained parallel shifts in the yield curve of plus or minus 300 basis points, respectively (i.e., "average life sensitivity" test); or (3) an estimated change in the price of more than 16 percent due to an immediate and sustained parallel shift in the yield curve of plus or minus 300 basis points (i.e., "price sensitivity" test).

Because the quantitative criteria do not sufficiently distinguish between high-risk derivatives and "plain vanilla" pass-throughs, MBA believes the average life and average life sensitivity criteria for defining high risk should be amended using GNMA and conventional pass-throughs as benchmarks as follows: (1) a derivative product with an average life of more than 12 years; and (2) a weighted-average life that extends or shortens by more than six years assuming a gradual but parallel shift in the yield curve of plus or minus 300 basis points.