lehman us mbs index
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Overview
March 2008 282
U.S. MBS Index
Index Composition as of 12/31/2007 Access to the Index
Sector Breakdown as of 12/31/2007
Contacts
Pricing and Related Issues
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The U.S. Mortgage Backed Securities (MBS) Index covers agency mortgage-backed passthrough securities (both fixed-rate and hybrid ARM) issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). Introduced in 1986, the GNMA, FHLMC, and FNMA fixed-rate indices for 30-and 15-year securities were backdated to January 1976, May 1977, and November 1982, respectively. Balloon securities were added in 1992 and removed on January 1, 2008. 20-year securities were added in July 2000. On April 1, 2007, agency hybrid adjustable-rate mortgage (ARM) passthrough securities were added to the U.S. MBS Index. Hybrid ARMs are eligible until 1 year prior to their floating coupon date
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KEY FEATURESDaily index returns and statisticsHistorical index time series downloadable into ExcelStandardized market structure reportsFully customizable viewsIndex primers and shelf reference documentsLatest index and portfolio strategies research publications
Bloomberg Index Page <LEHM> <14> Key statistics and returns<LUMS> <INDEX>
TICKERSTotal Return Index Value: LUMSTRUUSince Inception Total Return: LUMSSIUUMonth to Date Excess Return: LUMSERMarket Value: LUMSMVUYield to Worst: LUMSYWMod. Adj. Duration: LUMSMDReturns Mod. Adj. Duration: LUMSRMDAverage OAS: LUMSOASMaturity: LUMSMAT
POINT (Portfolio and Index Tool)Long Name: US MBSShort Name: mbs
KEY FEATURESIndex level returns and statisticsHistorical index constituentsFully customizable market structure reportsIndex dynamics and turnover reportsPortfolio upload/analysisMulti-factor Global Risk ModelPortfolio performance attributionAutomated batch processing
Sources & Frequency MBS bonds are priced by traders on a daily basis, with generic prices derived from these marks. The fixed-rate aggregates included in the index are priced daily using a matrix pricing routine based on trader TBA price quotations by agency, program, coupon, and WALA. Hybrid ARM bonds are OAS priced on a weekly, mid-month and month-end basis by traders, with daily subaggregate prices (narrower subsets of the hybrid aggregates used to determine index eligibility) derived from these spread levels and market movements. For details on Hybrid ARM subaggregates, please see the U.S. Hybrid ARM Index factsheet.
Timing 3:00 pm (New York time) each day. If the last business day of the month is a public holiday in the U.S. market, prices from the previous business day are used.
Bid or Offer Side Bonds in the index are priced on the bid side.
Settlement Assumptions
MBS passthroughs (both fixed-rate and Hybrid ARMs) are priced for Public Securities Association (PSA) settlement in the following month and discounted back to same-day settlement at the mortgage repurchase rate.
Verification The primary price for each security is analyzed through both statistical routines and scrutiny by the research staff. Significant discrepancies are researched and corrected, as necessary. On occasion, index users may also challenge price levels, which are then reviewed by the pricing team. Prices are then updated as needed using input from the trading desk.
Conv. 15 Year13.9%
GNMA 15 Year0.3%
Hybrid ARMs9.3%
Conv. 30 Year64.4%
GNMA 30 Year8.9%
Conv. 20 Year3.2%
Fixed-Rate MBS90.7%
Hybrid ARM9.3%
March 2008 283
Global Family of IndicesU.S. MBS Index
Index History
Rebalancing
Rules for Inclusion
Amount Outstanding Pool aggregates must have at least USD 250 million current outstanding. Fixed-rate pool aggregates are comprised of individual TBA deliverable MBS pools mapped on the basis of agency, program, coupon, and origination year of the pool. Hybrid ARM Subaggregates that are used to price the index have no minimum liquidity, but must be part of an aggregate that is larger than USD 250 million.
Maturity Pool aggregates must have a weighted average maturity of at least 1 year. Hybrid ARM Pools/Aggregates must have at least 12 months remaining in the security’s fixed-rate term prior to its conversion to a floating rate coupon.
Coupon Fixed-rate in half percent increments; Hybrid ARMs in quarter coupon buckets. Hybrid ARM pools are index-eligible only when the pool pays a fixed-rate coupon. Hybrid ARM pools within a subaggregate can range between plus or minus 0.125% from each quarter coupon increment. Fixed-rate quarter coupons were dropped on January 1, 1999.
Security Types Included:Agency MBS: GNMA, FHLMC, FNMA30-year, 15-year, 20-year3/1, 5/1, 7/1, and 10/1 Hybrid ARMS
(as of April 1, 2007)
Excluded:Non-agency (whole loan) collateral and jumbosTBAsCollateralized mortgage obligations (CMOs)Floating ARMsGPMs, Buydowns, graduated-equity, and project loansManufactured home mortgagesPrepayment penalty collateral10-year securitiesBalloons
Paydowns Paydown estimates are made on the first business day of the month using the previous month’s factor. This estimate and actual paydowns are updated on the 16th business days of the month.
Currency Denominated in USD.
Market of Issue SEC-registered, fully taxable issues.
Frequency The composition of the Returns Universe is rebalanced monthly at each month end and represents the set of bonds on which index returns are calculated. The Statistics Universe changes daily to reflect issues dropping out and entering the index, but is not used for return calculation. On the last business day of the month, the composition of the latest Statistics Universe becomes the Returns Universe for the following month.
Reinvestment of Cash flows
Interest and principal payments/paydowns earned by the Returns Universe are held in the index without a reinvestment return until month-end when it is removed from the index.
Index Changes During the month, indicative changes to securities (e.g. amount outstanding) are reflected in both the Statistics and Returns Universe of the index on a daily basis. These changes may cause bonds to enter or fall out of the Statistics Universe of the index on a daily basis, but will affect the composition of the Returns Universe only at month-end when the index is rebalanced. During the month, the MBS pool aggregates may see changes in amount outstanding due to paydowns and new production among their underlying pools. However, beginning of the month weights are used to aggregate performance from the MBS generic level.
New Issues Qualifying securities issued, but not necessarily settled, on or before the month-end rebalancing date qualify for inclusion in the following month’s Returns Universe.
January 1, 2008April 1, 2007July 1, 2004July 1, 2000January 1, 1999January 1, 1995January 1, 1992January 1, 1986November 1, 1982May 1, 1977January 1, 1976
MBS balloon issues removed from the index.Agency Hybrid Adjustable Rate Mortgage (ARM) securities added to the index.Discontinued using the implied Aaa+ rating. issues are now rated Aaa at the security level in average quality calculations.20-year securities added.Quarter coupons securities and adjustable-rate mortgages (ARMs) dropped.Graduated-payment mortgages (GPMs) dropped for lack of liquidity.MBS balloon issues added to the index. Manufactured homes dropped for lack of liquidity.Launch of the U.S. MBS Index with performance history backfilled to January 1, 1976.FNMA 30- and 15-year MBS included in index history.FHLMC 30- and 15-year MBS included in index history.Inception date of U.S. MBS Index with the inclusion of GNMA 30- and 15-year MBS.
Indices are unmanaged and cannot accommodate direct investments. Past performance is not indicative of future results. This material has been prepared and/or issued by Lehman Brothers Inc., member SIPC, and/or one of its affiliates ("Lehman Brothers") and has been approved by Lehman Brothers International (Europe), authorized and regulated by the Financial Services Authority, in connection with its distribution in the European Economic Area. This material is distributed in Japan by Lehman Brothers Japan Inc., and in Hong Kong by Lehman Brothers Asia Limited. This material is distributed in Australia by Lehman Brothers Australia Pty Limited, and in Singapore by Lehman Brothers Singapore Pte Limited. Where this material is distributed by Lehman Brothers Singapore Pte Limited, please note that it is intended for general circulation only and the recommendations contained herein do not take into account the specific investment objectives, financial situation or particular needs of any particular person. An investor should consult his Lehman Brothers representative regarding the suitability of the product and take into account his specific investment objectives, financial situation or particular needs before making a commitment to purchase the investment product. This material is distributed in Korea by Lehman Brothers International (Europe) Seoul Branch, and in Taiwan by Lehman Brothers Securities Taiwan Limited. This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other instruments mentioned in it. No part of this document may be reproduced in any manner without the written permission of Lehman Brothers. We do not represent that this information, including any third party information, is accurate or complete and it should not be relied upon as such. It is provided with the understanding that Lehman Brothers is not acting in a fiduciary capacity. Opinions expressed herein reflect the opinion of Lehman Brothers and are subject to change without notice. The products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Lehman Brothers may, from time to time, perform investment banking or other services for, or solicit investment banking or other business from any company mentioned in this document. © 2008 Lehman Brothers. All rights reserved. Additional information is available on request. Please contact a Lehman Brothers entity in your home jurisdiction.