When interest rates go down I understand that the average life of a pass through security will shorten. However, wouldn’t the WAM (Weighted average maturity) also be reduced since some of the mortgages are prepaid? Would the average life decrease by a larger percentage than the WAM or could both decrease by similar percentages? For instance, if the prepaid mortgages are the one with the highest weights and longest maturities in the pool, wouldn’t this also have a significant impact on the WAM?
Thanks in advance