hard · Asset-Backed Securities
An investor is comparing two CMBS bonds. Bond X is a conduit AAA priced at T+125 bp with a 9-year WAL. Bond Y is an auto ABS AAA priced at T+45 bp with a 2.5-year WAL.
Which metric suggests the auto ABS might offer better 'spread per unit of risk', and why?
- Subordination level (30% for CMBS vs 8% for the Auto ABS deal)
- Nominal Spread (125 bp for the CMBS bond vs 45 bp for the Auto ABS bond)
- Convexity profile (about 0 for the Auto ABS bond vs Negative for the CMBS bond)
- Spread per year of duration (18 bp/yr for Auto vs 14 bp/yr for CMBS)
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