&gt; What would they be called if they aren&#x27;t derivatives?<p>Securitised bonds, which is a cash product.<p>The distinction between a cash &amp; derivative product is really simple - one is leveraged the other isn&#x27;t. E.g if I buy 100m of MBS I actually have to cough up 100m in cash - I am buying both the interest and principal repayments of the underlying mortgages.<p>On the other hand if I enter into an interest rate swap with 100m notional I don&#x27;t pay anything at all (assuming traded at spot market levels, and ignoring initial margin). The risk, or sensitivity, to interest rates is the same on both, but am only paying out cash for the securitised bond.<p>Hence the bond, or MBS is &quot;cash&quot; and the swap is &quot;derivative&quot;.