An interest-only (IO) which entitles its holder to receive a fixed coupon stripped off a collateral weighted average coupon (WAC). For example, a 1% IO stripped off an 8% collateral WAC means the bond classes are paid a 7% coupon. If the collateral WAC changes, the IO will remain unchanged, and the WAC bond (the bond classes) will absorb the effect of change. For example, if the collateral WAC decreases to 7.5%, the IO will remain at 1%, while the WAC bond will incur a proportionate reduction (i.e., it gets 6.5% rather than 7%).
A fixed-strip IO is a type of CMBS IO.
