Paydown return only applies to securities of class SINKER.
Paydown return is generated by amortizing securities such as MBS and ABS, where the principal of the bond can be returned (or paid down) faster than expected under a normal amortization schedule. This paydown is generated by the underlying assets being paid back ahead of schedule, which may be due to homeowners refinancing their mortgages, making extra payments to decrease the life of their mortgage, or other effects.
The sign of the paydown return depends on whether the MBS is trading at a premium or a discount. If the security is at a premium, the paydown return will be negative, since the principal paid will be worth less as cash than if it remained invested in the security. If the security is at a discount, the paydown return will be positive, since the cash will be worth more in the hand than if it were invested in the discounted security.
Paydown return is a separate source of return, distinct from carry return, market return and credit return. It should therefore be placed in its own category on attribution reports.
Paydown return is given by
where is the change in the holding of the security over the payment period, and p is the security's market price. is provided in the bond factor field for the security, and this can be varied over time using FIA's effective date functionality.