Contraction Risk
The risk of a security shortening in duration due to the acceleration of prepayments.

Investopedia Says:
This risk is mainly due to lowering interest rates. Contraction risk is generally associated with mortgage securities. As interest rates decrease, the likelihood of prepayment increases.

Related Terms:
Companion Bond
Duration
Extension Risk
Fannie Mae - Federal National Mortgage Association - FNMA
Mortgage Backed Securities - MBS
Pass-Through Security
Planned Amortization Class (PAC) Tranche
Prepayment Risk
Sequential Pay CMO
Vintage

• Assurance
• Asymmetric Digital Subscriber Line (ADSL)
• Asymmetric Digital Subscriber Line (ADSL)
• Asymmetric Information
• Asymmetric Volatility Phenomenon (AVP)
• Asymmetric Volatility Phenomenon (AVP)
• Athens Stock Exchange (ATHEX)
• Athens Stock Exchange (ATHEX)
• Atlanta Fed Index
• A Ton Of Money
• At Risk Rules
• ATS
• Attachment
• Attestation
• At-The-Close Order
• At The Market
• At The Money
• At The Money
• At-The-Opening-Order
• Attorney In Fact
• Attornment
• Attribute Bias
• Attribution Rules
• Attrition
• Auction