A note (or a bond) that may repay principal before maturity date according to a preset amortization schedule linked to some index such as LIBOR, prepayment index, or a mortgage interest rate. This instrument has an embedded prepayment option. For example, a 5-year note may be from years 1 to 5 a coupon of 6% provided that 5-year CMT rate remains above or equal to 5% on any reset date. Otherwise, the note is retired prematurely.
It is also referred to as an index amortization note.
