Moody's Investors Service is currently implementing changes to its asset correlation model within cashflow structured finance CDOs backed by ABS, RMBS, CMBS, and other CDO tranches, said Yvonne Fu, a senior vice president in the rating agency's derivatives group. Moody's changed its approach for modeling correlations in synthetic transactions in the latter part of last year, she added.
The rating agency will now be using an approach called the Directional Ratings Transition Matrix' which is based on some 20 years of structured finance ratings transitions. The model is meant to provide more clarity to investors for understanding asset correlations among re-securitized portfolios, according to Moody's. The new matrix simultaneously identifies pairs of credits, both within and across different asset types that have been upgraded or downgraded.