Weighted Average Life (WAL)

WAL measures when you get your principal back for bonds with principal amortization (mortgages, ABS, scheduled amortizers). Unlike maturity (which only looks at the final payment), WAL weights each principal payment by when it occurs. For a standard bullet bond, WAL = maturity. For an amortizing bond paying principal monthly, WAL < maturity. Example: A 10-year mortgage with equal monthly principal payments has WAL ≈ 5.5 years. For MBS, WAL depends on prepayment speed — faster prepayments shorten WAL (prepayment risk). WAL is commonly used for ABS, MBS, and amortizing bonds where cash flow timing matters. For duration-based hedging, use WAL as a rough guide only — modified duration is more accurate for rate sensitivity. But WAL clearly communicates principal repayment timing.