DEFINITION of 'Asset Backed Credit Default Swap - ABCDS'

A redit default swap wherein the reference asset is an asset-backed security rather than a corporate credit instrument. The buyer of an asset backed credit default swap (ABCDS) is buying protection for defaults on asset-backed securities or tranches of securities, rather than protecting against the default of a particular issuer.

BREAKING DOWN 'Asset Backed Credit Default Swap - ABCDS'

Asset-backed credit default swaps are structured differently from other credit default swaps due to the nature of the instrument being hedged. For example, since many asset-backed securities amortize and pay monthly, the credit default swap will more closely match these features. The most widely used ABCDS transactions cover U.S. subprime mortgage tranches of mortgage securitizations.

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RELATED FAQS
  1. What level of default rate is typical for the credit services industry?

    Learn how default rates affect businesses in the credit services industry, and what rates are considered normal for a company ... Read Answer >>
  2. How are swap agreements financed?

    Learn how swap agreements are now cleared by swap execution facilities and require the use of collateral margin to hold, ... Read Answer >>
  3. In what types of financial situations would credit spread risk be applied instead ...

    Find out when credit risk is realized as spread risk and when it is realized as default risk, and learn why market participants ... Read Answer >>
  4. In the beginning of this year, the total par value of all CCC-rated bonds were $12 ...

    The correct answer is: d) (i) Default Loss Rate = [($1.3 billion - $625 million)/$1.3 billion] = 51.9% (ii) Dollar Default ... Read Answer >>
  5. Why is tenor important on credit default swaps?

    Read about the relationship between a credit default swap's tenor and the maturity of an underlying loan asset and why the ... Read Answer >>
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