Merrill Lynch will launch a collateralized mortgage obligation index--the first of its kind--by the end of the quarter. The firm is rolling out the index as an adjunct to its BookMark service released earlier this year, which was designed to help insurance companies more accurately measure the performance of their portfolios. CMOs make up a significant portion of insurance companies' fixed-income holdings, according to Phil Galdi, managing director of Merrill Lynch's global index team. "Now [insurance companies] benchmark CMOs against mortgage pass-throughs, which is a close fit but really doesn't reflect the type of risk they're taking," he said.
The index will track a broad spectrum of CMOs with underlying collateral from agencies such as Fannie Mae and Freddie Mac. It will include more than 1,000 classes and have filters based on the structural features of the securities, Galdi said. He declined to further detail what the index will look like, but said his team is currently testing the index with investors. He declined to speculate how much money would be run against the index.
Merrill will also launch a commercial mortgage-backed securities index as another adjunct to its BookMark service.