Markit, announced the forthcoming launch of the Markit IOS index on March 12, 2010. The Markit IOS is a….
synthetic total return swap index referencing the interest component of 30-year fixed-rate Fannie Mae residential mortgage pools.
The Markit IOS provides a synthetic solution for investing in or hedging exposure to interest-only (IO) securities by replicating these transactions with a TRS contract. The index provides investors with upside and downside exposure to accelerated prepayments and, as such, is a useful tool for hedging interest rate risk.
Sal Naro, Executive Vice President of Markit, said: “Markit is committed to launching new products that meet the needs of the global financial markets by bringing new levels of transparency to specific market segments. The Markit IOS index will provide firms with a more effective way to hedge interest rate risk, IO exposure and prepayment risk across agency mortgage-based securities.”
The index is comprised of all Fannie Mae residential mortgage pools issued in 2009 (with at least 90% of the underlying loans originated in 2009) and is divided into three sub-indices:
• Markit IOS.FN30.400.09 – 4.0% coupon
• Markit IOS.FN30.450.09 – 4.5% coupon
• Markit IOS.FN30.500.09 – 5.0% coupon
Each index references between 1,500 and 4,000 mortgage pools, but only takes into account the interest rate component. Index cashflows, prices and valuations are independent of the principal component.
Source: ETFWorld – Markit
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