Asset-backed securities
Securities repaid from a pool of non-mortgage loans or receivables — auto loans, credit card balances, student loans — held by a separate entity. Their structure follows how those loans repay.
Where you will meet it
Asset-backed securities appears in 3 learning outcomes on the CFA syllabus. A few of them:
- Explain asset-backed securities with non-mortgage collateral
“Asset-backed securities are collateralised by auto loans, credit card receivables, equipment leases or student loans, and their structures differ according to whether the underlying loans amortise.”
- Explain how structured products can stand in for corporate bonds in a credit portfolio
“Mortgage-backed and asset-backed securities, collateralised loan obligations and covered bonds give credit exposure to borrowers other than the corporate issuers that dominate bond indexes, adding diversification.”
- Explain covered bonds and what sets them apart from other asset-backed securities
“Unlike a typical asset-backed security, the assets are not sold to a bankruptcy-remote special purpose entity: they stay on the issuer's balance sheet, and investors have dual recourse, first to the issuer and then to the cover pool if the issuer fails.”
Practise it
Practise asset-backed securities until it is automatic: questions that explain every wrong option.
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