The ABX asset-backed security index will launch next week as an easier way for investors to take positions in default risk on US residential mortgages, according to its developers, Markit and CDS IndexCo.The index is based on 20 reference entities, all US residential mortgage-backed securities. Fifteen banks have so far signed up to trade the ABX index, which is based in New York.
Markit plans to produce five ABX sub-indexes with ratings of AAA, AA, A, BBB and BBB–, allowing the construction of products based on more specific reference entities. The names in each index will be reviewed every six months.
Markit anticipates that the index will attract new participants to the asset-backed credit default swap market, increasing liquidity and helping holders of mortgage-backed securities use derivatives for protection against default.
Markit is a St Albans-based data services provider. CDS IndexCo is a New York-based consortium of 16 banks that make markets in Dow Jones credit derivatives indexes.
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