Danish callable mortgage bonds are pass-through securities with quarterly payments. The underlying loans are annuities with the same coupon rate and only a small variation in time-to-maturity. Currently, most new loans have maturities of either 20 or 30 years. Borrowers have an option to prepay their loans at par with a notice period of two months. Since borrowers can also redeem their loans with bonds from the underlying series (called buybacks), we only see prepayments for bonds trading above
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