Problems with asset backed bonds
As well as the fact that they are floating rate securies, the redepmtion is also linked to the redemption profile of the assets themselves.
Now what this means is that it is really quite difficult to work out the evaluation of them! For instance if the assets are redeemed early then so is the bond itself.
And there will be interest rate links that can encourage or discourage paying it back.
So there is quite considerable uncertainty to be considered when it comes to asset backed bonds and working out what is for the best can be quite difficult. There are also other sorts of assets that can be transferred other than mortgage backed bonds, and these too can exhibit their own peculiarities and difficulties with evaluation, and so it really is a sort of option that needs to be fully considered and understood before that particular financial path is gone down!
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