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| | Tiered Interest Bonds (TIBs) |
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Tiered Interest Bonds (TIBs)
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A CMO tranche created at the same time as a capped floater and an inverse floater from the cash flows of a fixed coupon CMO class, a TIB combines some of the characteristics of a high fixed coupon note and an inverse floater. When the interest rate index (typically LIBOR or COFI) that determines the TIB rate is below a level called the lower strike, the TIB coupon is fixed at a relatively high level called the TIB cap. As the index moves above the lower strike, the TIB becomes a leveraged inverse floater with a rate that drops to zero at an upper strike rate. The upper strike is usually a few percentage points above the lower strike.
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Glossary *
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