What is the difference between asset-backed securities(ABS), covered bonds and collateralized debt obligations (CDO)?
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1$\begingroup$ Google is down at this time? $\endgroup$– Alex CFeb 4, 2016 at 5:07
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$\begingroup$ Yes .. can be googled, rather basic .. but as you put it in your answer ... one can give a good picture about this topic .. $\endgroup$– Richi WaFeb 4, 2016 at 9:38
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1 Answer
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MBS are securities which represent ownership in a pool of mortgages
ABS are securities which represent ownership in a pool of assets other than mortgages (for example auto loans or credit card loans)
Collateralized Debt Obligation are complex entities which issue tranches of securities to investors and use the proceeds to buy MBS, ABS or other assets. The highest tranches have priority in receiving cash flows from the owned securities, and thus are less risky and less leveraged than the lower tranches.
Covered bonds is the English name for Pfandbriefe, a German invention. They are debt instruments issued by a bank, and are part of the capital structure of that bank (unlike the above which are independent securities). The pfandbriefe are backed by a pool of mortgages, which serve as a kind of second level guarantee (or "cover") if the bank is unable to repay. In addition the bank is required to put up new mortgages if the old ones expire or default.
