Stripped mortgage-backed securities
Also found in: Acronyms.
Stripped mortgage-backed securities (SMBS)
Stripped Mortgage-Backed Security
A mortgage-backed security with a cash flow that derives exclusively from interest payments or principal payments on the underlying mortgages. That is, the underlying asset of a stripped MBS is interest or principal paid on debt securities, rather than both together. Stripped mortgage-backed securities are extremely sensitive to changes in interest rates, allowing investors to choose either an interest strip or a principal strip depending on the expected direction of interest rates.