Collateralized mortgage obligations (CMOs)

Investor’s guide

Bonds, also known as fixed income securities, are intended to generate interest income each year. One type of bond available to you through Ameriprise Financial is a collateralized mortgage obligation (CMO). A CMO has cash flows directed to direct classes of securities with different maturities and coupon rates. A wider range of investment timeframes are offered from the same pool of underlying mortgages, which are called tranches. The principal payoff for each tranche may vary depending on the structure. Principal payments and interest are distributed to different tranches based off a predetermined priority.

To help determine whether a CMO is an appropriate investment for you, refer to the Mortgage-backed securities (MBS) and collateralized mortgage obligations (CMOs) investor’s guide. This guide defines and explains various mortgage-backed securities, the interest rates and yields on these securities, and tax considerations for a CMO. The guide also provides a glossary of associated investment terms.

Take the next step

To find out more about including CMOs in your investment strategy, contact your Ameriprise financial advisor or locate an advisor near you.

A CMO’s yield and average life will fluctuate depending on the actual rate at which mortgage holders prepay the mortgages underlying the CMO and changes in current interest rates

Investments in asset-backed and mortgage-backed securities are subject to prepayment risk which can limit the potential for gain during a declining interest rate environment and increases the potential for loss in a rising interest rate environment.

There are risks associated with fixed income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities.

Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

Ameriprise Financial Services, LLC, Member FINRA and SIPC.