High quality bonds with higher yield
Asset-backed securities have become a mainstream product, attracting an increasingly large investor base. They offer investors attractive opportunities to enhance their portfolio’s risk/return profile.
Asset-backed securities consist of the packaging of similar, generally non-tradable assets into tradable instruments. The assets are sold to a specific entity – the Special Purpose Vehicle (SPV) – set up for this sole objective. This entity then refinances the assets by issuing bonds or notes backed by the asset pool.
Asset-backed securities allow investors to diversify their investments, as they open the door to otherwise non-tradable assets. They offer attractive spreads, stable ratings and have proven, excellent performances.
Depending on the structure of the ABS and the characteristics of the underlying assets, the principal will be reimbursed either at maturity (bullet ABS), or by instalments (amortising ABS).
The main advantage of ABS is that they are typically highly rated instruments that offer more attractive spreads than similarly rated corporate bonds: over 80% of ABS issued have a triple-A rating. Investing in lower-rated Asset Backed Securities entails higher risks.
BNP Paribas Fortis is a very well-known player in the asset-backed market: it has been investing, trading and underwriting all kinds of euro and USD ABS for over ten years.