Definition of 'Interest Only (IO) Strips'

The interest portion of mortgage, Treasury or bond payments, which is separated and sold individually from the principal portion of those same payments. The periodic payments of several bonds can be "stripped" to form synthetic zero-coupon bonds. 

Also, an IO strip might be part of a larger collateralized mortgage obligation (CMO), asset-backed security (ABS) or collateralized debt obligation (CDO) structure.

Investopedia explains 'Interest Only (IO) Strips'

Financial engineers, such as Wall Street dealers, frequently strip and restructure bond payments in an effort to earn arbitrage profits. Zero-coupon Treasury strips are an important building block in many financial calculations and bond valuations. For example, the zero coupon or spot-rate Treasury yield curve is used in option-adjusted spread (OAS) calculations and for other valuations of bonds with embedded options.

Read more: http://www.investopedia.com/terms/i/iostrips.asp#ixzz1vcIqWEKT

Definition of 'Principal Only Strips - PO'

A type of fixed-income security where the holder is only entitled to receive regular cash flows that are derived from incoming principal repayments on an underlying loan pool. The loan is often a pool of mortgages in the form of a mortgage-backed security (MBS). 

Investopedia explains 'Principal Only Strips - PO'

This security is created by splitting a mortgage-backed security into its interest and principal payments. The principal payments create a string of cash flows which are sold at a discount to investors. These investors will receive the principal portions of the monthly mortgage payments from the underlying pool of loans.

The yield on a PO strip depends on the prepayment speed of the underlying loan. The faster the principal is repaid, the higher the yield an investor will receive. Since the investor benefits from faster repayment speeds, he or she is protected from contraction risk. This means that, unlike a usual bond, the investor will benefit from decreases in the interest rate.

Read more: http://www.investopedia.com/terms/p/postrips.asp?q=po strips#ixzz1vcJ8aiWe

预计利率上涨时，支付利息会变多， 借款人还款本金会变慢 ，可以购买IO

预计利率下跌时，支付利息会变少，借款人还款本金会变大，可以购买PO

IO与PO的风险主要在于repayment风险。

比如说购买了IO，假如客户提前还贷，则收到的利息会小于预期。