P & I

Abbreviations for principal and interest on bonds or mortgage-backed securities. A traditional debt instrument such as a bond makes periodic interest payments and returns bondholders' principal when the bond matures. But in many cases, the principal payment and each of the interest payments are separated from each other by brokerage firms and sold in pieces. When accomplished with Treasury bonds, each of the individual interest payments and the final principal payment is sold as a "stripped" zero-coupon bond known as a Strip. In the case of a mortgage-backed security, each of the interest payments and principal repayments from mortgagees is packaged into a Collateralized Mortgage Obligation. A security composed of only interest payments is known as an interest-only or IO security. A security composed of just principal repayments is known as a principal-only or PO security. Both IOs and POs are forms of Derivative Securities.

Principal and Interest (Payment).