A few sets of questions I'd appreciate some help on:Average effective maturity is a weighted average of all the maturities of the bonds in a portfolio, computed by weighting each bond’s effective maturity by the market value of the security.
Average effective maturity takes into consideration all mortgage prepayments, puts, and adjustable coupons. (Because Morningstar uses fund company calculations for this figure and because different companies use varying interest-rate assumptions in determining call likelihood and timing, we ask that companies not adjust for call provisions.)
Longer-maturity funds are generally considered more interest-rate sensitive than their shorter counterparts.
(1) Anyone care to speculate on why there is that apparently huge discrepancy between "Average Effective Maturity" and "Bond Maturity Breakdown"? In the maturity breakdown do they have to go by the longest dated mortgage in the each mortgage-pooled holding even though the rest of the mortages have earlier maturities? Or do they go with the average maturity of the pool? To what degree do the "Average Effective Maturity" numbers factor in extension risks (i.e. risks that if interest rates go up, people will hold onto their mortgages longer)? It seems odd that they say they factor in pre-payments without mentioning extension risk.
(2) I wasn't aware of there being any significant number of mortgages, much less GNMA guaranteed mortgages, that have maturities over 30 years. Are there? And if so, what are some of the banks or mortgage companies that offer them?
(3) In the 1970's and early 1980's interest rates went way up. Does anyone know any statistics on the degree of extension risk that manifested during that period or the effect extension risk had on average effective maturity?