Vintage
Candlefocus EditorIn the context of finance, vintage is used to describe mortgage-backed securities. These securities are also called MBS and refer to a bond that is collaterized by a pool of mortgages. Vintage in this context refer to the age of the MBS and is used as a tool to assess the inherent risk associated with the security.
The younger MBS will have a higher assumed risk and hence, lower perceived value as compared with their more ‘seasoned’ counterparts. This is because a newer MBS has not had the benefit of time to fully amortize any prepayments and probability of default is higher.
MBS can also refer to a type of bond that is held by several parties at once. These parties are usually a group of institutional investors and depending on the size or type of MBS, the bonds may be held by various government agencies such as the Federal Home Loan Bank. This is another key factor to consider when appraising the vintage of a given MBS.
The perceived value of vintage MBS is determined by various factors including its maturity date and prepayment risk. It's important for investors to understand the age of MBS and the associated risks before investing in them. Not all vintage securities are alike, and some may still be prone to default, yet vintage MBS is still regarded as an attractive investment option due to its potential for higher returns.
To sum it up, vintage is an important concept in both the world of premium, vintage items as well as in the finance and investment markets. It is a measure of an item’s age and a way to determine its associated risk. The term is used to refer to both antiques from a bygone era and to mortgage-backed securities that have been ‘seasoned’ through time.