ABX (Asset-Backed Securities Index) and CMBX (Commercial Mortgage-Backed Securities Index)

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ABX (Asset-Backed Securities Index) and CMBX (Commercial Mortgage-Backed Securities Index)

The ABX (Asset-Backed Securities Index) and CMBX (Commercial Mortgage-Backed Securities Index) are two types of indexes that track the performance of pools of asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS), respectively.

The ABX index was introduced in 2006 and tracks the performance of a pool of subprime residential mortgage-backed securities (RMBS). It is divided into several tranches, each representing a different level of risk. The tranches are divided into groups of 20, each representing a different vintage year. The ABX index allows investors to trade on the performance of subprime RMBS, which was previously difficult to do.

The CMBX index was introduced in 2007 and tracks the performance of a pool of commercial mortgage-backed securities. Like the ABX, the CMBX is divided into several tranches, each representing a different level of risk. The tranches are divided into groups of five, each representing a different vintage year. The CMBX allows investors to trade on the performance of CMBS, which was also previously difficult to do.

Both the ABX and CMBX indexes are used by investors to gain exposure to the performance of pools of ABS and CMBS. They are also used by traders to hedge against the risk of these securities. For example, if an investor is holding a portfolio of subprime RMBS, they can use the ABX index to hedge against the risk of default.

However, the ABX and CMBX indexes have been criticized for contributing to the 2008 financial crisis. Many investors were using these indexes to bet against the housing market, and when the housing market crashed, it led to large losses for many investors and financial institutions. As a result, the use of these indexes has become more regulated and scrutinized by regulators in recent years.

In summary, the ABX and CMBX indexes are important tools for investors to gain exposure to pools of ABS and CMBS. They allow investors to trade on the performance of these securities and hedge against risk. However, the use of these indexes has also been associated with contributing to the 2008 financial crisis, and their use is now more regulated and scrutinized.

The ABX (Asset-Backed Securities Index) and CMBX (Commercial Mortgage-Backed Securities Index) are divided into several tranches, each representing a different level of risk. The tranches are divided into groups of securities that share common characteristics, such as vintage year, geographic region, or collateral type.

For the ABX index, the tranches are typically labeled from AAA to BB-, with AAA representing the highest quality securities and BB- representing the lowest quality securities. Within each rating category, there may be multiple tranches based on the vintage year or other characteristics.

Similarly, the CMBX index is also divided into multiple tranches based on the vintage year, geographic region, and collateral type. The tranches are labeled from AAA to BBB-, with AAA representing the highest quality securities and BBB- representing the lowest quality securities.

Both the ABX and CMBX indexes also have tranche indices that track the performance of a specific tranche over time. This allows investors to trade on the performance of a specific tranche, rather than the entire index.

Overall, the different tranches in the ABX and CMBX indexes allow investors to gain exposure to different levels of risk and return. They can choose to invest in higher-rated tranches for lower risk and lower returns, or lower-rated tranches for higher risk and potentially higher returns.

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