Debt in securitisation is a type of financial instrument that is created by
pooling together a group of loans or other debt obligations. The debt is then divided into
tranches, or slices, with each tranche having a different risk and return profile. The tranches are then sold to investors, who receive a stream of payments from the underlying debt obligations.
Securitisation can be a way for banks and other financial institutions to raise money and to reduce their risk exposure. It can also be a way for investors to gain exposure to a diversified pool of debt obligations.
There are a number of different types of securitisations, each with its own unique features and risks. Some of the most common types of securitisations include:
- Mortgage-backed securities (
MBS): MBS are securitisations that are backed by residential mortgages.
- Asset-backed securities (
ABS): ABS are securitisations that are backed by a variety of assets, such as credit card receivables, auto loans, and student loans.
- Collateralized debt obligations (
CDOs): CDOs are securitisations that are backed by a portfolio of debt obligations. CDOs can be complex and risky investments.