Executive Summary
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A number of structured finance investment products are available in money markets that offer investment options for cash-rich investors.
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Products include asset-backed commercial paper, total return swaps, and collateralized committed repo liquidity lines.
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The returns available for cash-rich investors differ according to asset credit quality, with higher yields on lower-rated assets.
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Returns also differ by product type.
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Investors should assess the liquidity of an instrument type as well as its credit risk.
Introduction
The application of synthetic securitization and structured finance techniques in debt capital markets has made a range of asset classes available to investors who would not otherwise have access to them. Thus banks, fund managers, and cash-rich corporate institutions can choose from a wide variety of investment options for their funds. This article introduces a sample of money market products that present alternatives for the investment of surplus funds. In each case we consider the basic product structure, and we look at the different yields across products.
The global credit and liquidity crunch in 2007–08 resulted in a widespread “flight-to-quality” as investors became excessively risk-averse. Yield spreads widened considerably and certain asset classes and products were no longer viable. We review here only instruments that remain practical products for both investors and borrowers. The products considered are:
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Asset-backed commercial paper;
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Total return swap funding, or synthetic repo;
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Collateralized committed repo liquidity lines.
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