Asset Backed Credit Default Swap - ABCDS

  

Categories: Bonds, Accounting, Metrics

Two companies owe money. Their debt is insured by somebody else, such that, if they default and can't pay, then the insurer of their debt is on the hook. This practice is common in home mortgage packages traded among institutional bond investors. Shouting out that these are asset backed as opposed to handshake backed (debentures) simply implies that there is a single identifiable asset that serves as collateral backing the credit and/or trust of either side involved in the swap.

Related or Semi-related Video

Finance: What is a Money Market Fund?80 Views

00:00

finance a la shmoop. what is a money market fund? isn't it a strange concept

00:08

to think about going to a market to buy money? [man walks through grocery store]

00:12

well yeah it's strange but the practice exists and it's a huge multi trillion

00:17

dollar market today. the key word here is money and not investment. why such a big

00:23

diff? well because the notion of investing implies duration. that is when

00:28

you invest in a nice fixer-upper home or a tractor distribution company or shares

00:34

in a fat dividend-paying bank you're investing for presumably a long time [people stand in line]

00:40

like years maybe decades maybe centuries if you can find the right miracle pill.

00:44

but here we're talking about money like the stuff you can buy candy with. so it's

00:49

short term not long and a money market fund basically comprises many series of

00:55

pretty safe bonds that are all coming due in the next 30 to 90 days. sometimes [pie chart]

01:00

longer than that sometimes shorter but generally in the very near future. so why

01:04

would you care about a money market fund? well because it pays you slightly more

01:09

interest on your money than say a bank checking account. and lots of people in

01:13

corporations need cash just sitting around to pay their bills, so there are

01:18

tons of money market funds out there available and that's the gist of a money

01:21

market fund. we're sure you'll have plenty of experience with them by the

01:25

time you hit your sixth hundredth birthday day [people cheer and hold birthday cake]

Up Next

Finance: What's the Difference Between Short-term and Long-term Liabilities?
35 Views

What is the difference between short-term and long-term liabilities? Short-term liabilities show up on the balance sheet. They need to be paid in t...

Finance: What is Dilution?
77 Views

What is dilution? Dilution happens when a company’s outstanding shares increase, meaning that stockowners now own a smaller percentage of the com...

Finance: What is Collateralized Mortgage Obligation (CMO)?
65 Views

What is Collateralized Mortgage Obligation (CMO)? A CMO is a mortgage bond that consists of a large number of different individual mortgages bundle...

Finance: What is collateral?
98 Views

What is collateral? Any type of asset or property that a borrower pledges as security for a loan is classified as collateral. As the lender has a c...

Find other enlightening terms in Shmoop Finance Genius Bar(f)