A new type of mortgage bond is helping HSBC Securities build its name on Wall Street. The company is offering agency debentures whose principal payments are linked to prepayment rates-the latest twist on the standard security that passes along income from a diversified basket of mortgage loans.

HSBC Securities, a New York unit of HSBC Holdings PLC, which also owns Marine Midland Bank, is among a handful of firms offering the new mortgage products, known as Agency Mortgage-Indexed Principal Redemption Bonds. They are billed as potentially less volatile because of their tie to the relatively consistent prepayment rates of specific security pools, like 8% coupons issued by Freddie Mac in 1995.

Growing demand for the redemption bonds-about $5 billion worth are expected to be issued this year-illustrates that investors can't get enough mortgage securities these days, said Arthur Q. Frank, a research chief at HSBC Securities.

The redemption bonds are especially appealing as alternatives to shorter-term collateralized mortgage obligations and balloon mortgage pass- through securities that currently carry high prices, Mr. Frank said.

HSBC Securities has so far traded about $400 million of the redemption bonds, mostly to financial institutions and money managers interested in shorter-term securities, said Richard Rosati, the firm's executive director overseeing mortgage trading.

Mr. Rosati joined HSBC last summer to rev up what was then a modest mortgage business. He is bent on building HSBC as a niche player-using products like the redemption bonds-instead of butting heads with giants like Goldman, Sachs & Co. and Salomon Brothers Inc.

"We need to be creative and show new ideas to the investment community," Mr. Rosati said. "That's where we're going."


Mortgage securities are playing a key role in a new kind of mutual fund that aims to be as safe as a money market fund, while offering a higher return.

The BT PreservationPlus Fund, introduced last week by Bankers Trust Co., will invest about 25% of its capital in mortgages, said Eric Kirsch, a managing director in the bank's global investment management arm.

The PreservationPlus Fund is structured with a "wrapper"-an insurance policy-to keep its net asset value from declining. The fund will invest in mortgage securities, high-grade corporate bonds, and other securities that should provide better yields than money market funds, Mr. Kirsch said.

Mortgage securities are appealing because "they supply higher yields than Treasury securities with virtually the same credit quality," Mr. Kirsch said.

He estimated that investors who stay in the PreservationPlus Fund for five years would enjoy a 200- to 300-basis-point advantage over money market funds.

The New York bank is marketing its new fund to defined benefit plans, like 401(k)s for mainstream companies and 403(b)s for public service employees.

The product is seen as an alternative to Guaranteed Investment Contracts issued by insurance companies. GICs once made up the majority of defined contribution plan assets but have declined in popularity since some insurers ran into trouble and the public acquired a taste for mutual funds.

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