Markit Launching New Fannie Mae Residential Mortgage Pool Trackers

Beginning Wednesday, the data and trade processing firm Markit will offer three new sub-indices tracking 30-year Fannie Mae (FNM) residential mortgage pool, with plans for a completely new index this summer. The Markit IOS is a synthetic Total Return Swap Index series referencing the interest component in the pools. The three new sub-indicies will track 5.5%, 6% and 6.5% coupons. The IOS references the synthetic interest-only portion of agency pools in the index, according to Markit, serving as a liquid and standardized tool for investors to take long or short positions based on their own assumptions of prepayment and extension of the reference pool interest payments. Index cashflows, prices and valuation are measured independently of the principal component. Additionally, the firm will initiate an index that will reference the principal component of the respective IOS pools. The PO indices, expected this summer, will follow the same transaction structure as IOS. There will be six sub-indices reflecting the coupon stack on 50 basis points intervals from 4% to 6.5%. The Markit PO indices will be priced daily and will be tradable from inception. Numerous market participants on both the buy- and sell-side are expected to participate, including ten licensed market makers. Markit only recently opened PrimeX, a set of indices tracking private-label prime jumbo US residential mortgage-backed securities. Write to Jacob Gaffney. Disclosure: the author holds no relevant investments.

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