Merrill Lynch today launched a new U.S. Agency Collateralized Mortgage Obligation Index series that is set to track this sector's performance. The Index now has 1,173 constituents that have a total capitalization of over $363 billion. Data sets of returns and risk characteristics are available dating back to December 1996. More sub-indices are also available that classify the market according to tranche type and average life.
"The Merrill Lynch U.S. Agency CMO Index is the first to tackle this large, complex asset class," said Phil Galdi, managing director of global bond index and analytics group, in a release today. Merrill Lynch started tracking CMOs to support the increasing number of BookMark indices that it has constructed for insurers in the past two years. "Having established our historical CMO database and benchmarking capability, it was only logical for us to make it available to traditional total rate of return investors as well," he added.
Akiva Dickstein, managing director and co-head of the U.S. rates and structured credit research group, also said, "The addition of the CMO index, with its extensive history and supporting analytics, will be an invaluable tool in helping to determine the sector's performance. It should further help us analyze the behavior of different types of CMOs under a variety of interest rate environments,"
The CMO Indices are compiled every day and are available, along with Merrill Lynch's entire compliment of over 3,500 bond indices, on a wide variety of distribution platforms, which includes the Merrill Lynch Global Index System that can be accessed on Bloomberg or the Merrill Lynch Index Website at
The release said that the Index is "rules-based," which means that bonds must meet a defined list of criteria to be included. Qualifying securities should have at least one year remaining term to final maturity, a fixed coupon schedule, an original deal size for the collateral group of at least $500 million and a current outstanding deal size for the collateral group that is greater than or equal to 10% of the original deal size. Additionally, qualifying tranches must meet certain minimum size filters.
Floating rate, inverse floating rate and exchangeable tranches of qualifying deals are excluded from the Index as are all non-agency and private placement deals.
Merrill said that CMOs would not be part of the Merrill Lynch U.S. Broad Market Index as their underlying cash flows are already represented in the index through the mortgage passthrough component.
