New index to aggregate Fannie Mae coupon stack
Financial information data provider Markit is launching its MBX series of indices on September 12 that will combine aspects of its Fannie Mae residential mortgage bond tracker, the IOS and PO indices. The MBX index came about due to market demand, according to Ned Lipes, Vice President, Structured Finance, and will provide a more accurate pricing point for the entire pass-through structure and reduces the independent amounts required for the same type of exposure through an IOS/PO combination. However, the MBX index is not standalone as it can be referenced either separately or in tandem with the IOS and PO monitored coupon stacks. The Markit IOS/PO are synthetic Total Return Swap Index series referencing the interest component in Fannie Mae pools. The sub-indices are priced daily and track 4%, 4.5%, 5%, 5.5%, 6% and 6.5% coupons. "The IOS & PO are very popular among Trust IO market participants, who will be able to utilize the new MBX index as an additional tool for investing," Ned said. "However, the MBX may bring in other types of institutional investors because of its simplicity, complete exposure of agency pass-through cashflows, and transparency on pricing." MBX transaction structure will mirror the total return swap model from the IOS & PO indices, and will have both "interest payment" and a "principal payment" components payable by the short position, according to the Markit website. Write to Jacob Gaffney.