The residential mortgage-backed securities index, launched last month, has so far proven hugely popular with macro hedge funds, but not with the intended class of asset-backed securities investors.
"ABS traditionally was a long-only market," said Rajiv Kamilla, v.p. in the structured products group at Goldman Sachs. "If you didn't like the bond, you didn't buy it. Or if you owned it you sold it." Credit default-swaps on single name asset-backed securities, paired with the ABX, allow investors to pick risks rather than go long the market.
This feature of the synthetic ABS market has led to a surge in trading activity--both long and short risk. But it has been led by hedge funds, not traditional ABS investors. "It's not working the way it should," said Frank Vetrano, director of capital deployment at Freddie Mac, at the ABS West Conference. "But I think it will. I'm very much an optimist."
