Asset-backed security?

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Securities

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Asset-backed security
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Asset-backed securities are a type of bond that is based on pools of assets. Assets are pooled to make otherwise minor and uneconomical investments worthwhile, while also reducing risk by diversifying the underlying assets. The securitization makes these assets available for investment to a broader set of investors. Typically, the securitised assets might be highly illiquid and private in nature.

The financial assets in the pool backing the asset-backed securities range from mortgages and cr card debt to accounts receivables. Often the term asset-backed security is used in a narrower sense. As the mortgage-backed security market is so large, it is often seen as separate. In this case, asset-backed security means bonds backed by a pool of financial assets other than mortgages.

A significant advantage of asset-backed securities is that they bring together a pool of financial assets that otherwise could not easily be traded in their existing form. By pooling together a large portfolio of these illiquid assets they can be converted into instruments that may be offered and sold freely in the capital markets.

According to Thomson Financial League Tables, US issuance (excluding mortgage-backed securities) was:

  • 2004: USD 857 billion (1,595 issues)
  • 2003: USD 581 billion (1,175 issues)

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