securitized bond

Bonds, whose interest and principal payments are backed by a cash flow from another asset, are called securitized. Securitization can provide the borrower an element of cash flow backing to investors. For instance, a mortgage bank can use its cash inflows on its mortgage book as asset backing for issue of bonds. Such an issue would be known as a mortgage-backed security (MBS). Because residential mortgages are usually paid off earlier by homeowners, the notes that are backed by mortgages are also prepaid ahead of their original maturity. This feature means that MBS securities are not bullet bonds, but are instead known as amortising bonds. Other asset classes that can be securitised include credit card balances, car loans, equipment lease receivables, and so on. Securitised bonds are usually called structured finance products or structured products, and the market in MBS, asset-backed securities (ABS), collateralised debt obligations (CDOs), and asset-backed commercial paper (ABCP) is known as structured finance market.

Securitized Bond

See also