ABX index

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DEFINITION of 'ABX index'

A financial benchmark that measures the overall value of mortgages made to borrowers with subprime or weak credit. The ABX index uses credit default swap contracts to come up with an overall value and is made up of 20 bonds that is comprised of groups of subprime mortgages. Using this index, financial institutions are able to determine if the market for these securities are improving or worsening. Also referred to as Asset-Backed Securities Index.

INVESTOPEDIA EXPLAINS 'ABX index'

For example, if the ADX Index increases, this means there is less risk with subprime mortgages and vice versa. It was created by Markit and is useful for investors interested in subprime mortgages. Subprime mortgages being mortgages given to customers with faulty or weak credit.

RELATED TERMS
  1. Contingent Credit Default Swap ...

    A variation on the credit default swap (CDS). In a simple CDS, ...
  2. Asset Backed Credit Default Swap ...

    A redit default swap wherein the reference asset is an asset-backed ...
  3. Asset-Backed Security - ABS

    A financial security backed by a loan, lease or receivables against ...
  4. Subprime Mortgage

    A type of mortgage that is normally made out to borrowers with ...
  5. Credit Default Swap - CDS

    A swap designed to transfer the credit exposure of fixed income ...
  6. Benchmark

    A standard against which the performance of a security, mutual ...
RELATED FAQS
  1. How did the ABX index behave during the 2008 subprime mortgage crisis?

    Markit Group Ltd. created the ABX index as a synthetic basket of goods designed to provide feedback on the subprime mortgage ... Read Full Answer >>
  2. How do traders use the ABX index?

    In January 2006, the financial services company Markit Group Ltd. created the absolute breadth index (ABX) to measure the ... Read Full Answer >>
  3. What role did securitization play in the U.S. subprime mortgage crisis?

    The securitization of subprime mortgages into mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) ... Read Full Answer >>
  4. How often is interest compounded?

    Interest can be compounded on any given frequency schedule. Common interest compounding time frames are daily, monthly, semi-annually ... Read Full Answer >>
  5. What are interest rate swaps on the OTC market?

    Interest rate swaps are agreements where counter parties agree to exchange interest rate cash flows based upon the difference ... Read Full Answer >>
  6. How can the exponential moving average be used in swing trading?

    The exponential moving average (EMA) is a variation of the simple moving average that places more emphasis on the latest ... Read Full Answer >>
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