I understand why a support tranche has high contraction risk, but why would it also have high extension risk?
A PAC tranche has upper and lower limits on the prepayments it receives. If prepayments are slow (below the minimum level for the PAC), then the support tranche gives up some of its prepayment to the PAC, extending the support tranche. If prepayments are fast (above the maximum level for the PAC), then the support tranche receives the excess prepayment from the PAC, contracting the support tranche.
ah yes, thank you again!
My pleasure.