Mortgage-Backed Bonds are securities created by pooling various mortgage loans and then selling shares in that pool to investors. When borrowers make their mortgage payments, the funds are collected and distributed to the MBB investors. These bonds carry the risk of default as they depend on the homeowners making their mortgage payments, and they typically offer higher yields compared to traditional bonds due to this added risk. MBBs can also be categorized into different tranches, which have varying levels of risk and return depending on the underlying mortgages’ risk profiles.