Fixed Income Analysis, Second Edition

CHAPTER 11

ASSET-BACKED SECTOR OF THE BOND MARKET

I. INTRODUCTION

As an alternative to the issuance of a bond, a corporation can issue a security backed by loans or receivables. Debt instruments that have as their collateral loans or receivables are referred to as asset-backed securities. The transaction in which asset-backed securities are created is referred to as a securitization.

While the major issuers of asset-backed securities are corporations, municipal governments use this form of financing rather than issuing municipal bonds and several European central governments use this form of financing. In the United States, the first type of asset-backed security (ABS) was the residential mortgage loan. We discussed the resulting securities, referred to as mortgage-backed securities, in the previous chapter. Securities backed by other types of assets (consumer and business loans and receivables) have been issued throughout the world. The largest sectors of the asset-backed securities market in the United States are securities backed by credit card receivables, auto loans, home equity loans, manufactured housing loans, student loans, Small Business Administration loans, corporate loans, and bonds (corporate, emerging market, and structured financial products). Since home equity loans and manufactured housing loans are backed by real estate property, the securities backed by them are referred to as real estate-backed asset-backed securities. Other asset-backed securities include ...