Intro:

Over the past year, the European Structured Finance market has seen several innovations
in the area of synthetic asset-backed products. Products such as Credit Default Swaps and
Total Return Swaps have been traded in the ABS market and more innovations are in the
pipeline. The products are gradually gaining acceptance among a variety of investors and
recently the International Swaps and Derivatives Association released its template for
Credit Default Swaps on ABS credits, increasing the standardisation of the product. This
market has the potential to grow significantly and offers investors more avenues to take
exposure to the European ABS markets. In fact, for the first time, these products allow
investors to take both long and short positions, thereby enabling them to express positive
and negative views on a bond or sector. In this publication, we reprint two articles from
our weekly publication, the first on Total Return Swaps and the second on Asset-Backed
Credit Default Swaps. The articles describe the mechanics of the products and provide
pointers to some of their potential uses.