Markit will be launching the Markit IOS index tomorrow. The new release is a synthetic total return swap index that will be referencing the interest component of 30-year fixed-rate Fannie Mae RMBS pools.

The Markit IOS offers a synthetic solution for investing in or hedging exposure to interest-only (IO) securities by replicating these transactions that have a TRS contract.

It also provides investors with upside and downside exposure to accelerated prepayments andso it becomes a useful tool for hedging interest rate risk.

“Markit is committed to launching new products that meet the needs of the global financial markets by bringing new levels of transparency to specific market segments," said Sal Naro, executive vice president of Markit. "The Markit IOS index will provide firms with a more effective way to hedge interest rate risk, IO exposure and prepayment risk across agency mortgage-based securities.”

The index comprises all Fannie Mae RMBS pools issued in 2009, having at least 90% of the underlying loans originated in 2009, and is divided into three sub-indices:Markit IOS.FN30.400.09 – 4.0% coupon;  Markit IOS.FN30.450.09 – 4.5% coupon; and Markit IOS.FN30.500.09 – 5.0% coupon.

According to a release from Markit, each index references between 1,500 and 4,000 mortgage pools. However, each one only takes into account the interest rate component. Index cashflows, prices and valuations are independent of the principal component.

This index, which will be priced daily, will be tradable from the start and various market participants on both the buy side and sell side are expected to participate, including ten licensed market makers.

Find additional data on the index at:

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