About MBS/ABS
Minimum Investments, Transaction Costs and Marketability
The minimum denomination for an investment in an ABS is typically $1,000, although some classes have higher minimum denominations. There are some retail investors who buy small volumes of ABS, but this is still mainly an institutional market. As a practical matter, most institutions do not make ABS investments of less than $1 million. A national network of ABS dealers sell, trade and make markets in ABS. These transactions are executed over-the-counter, directly from dealer to dealer rather than through an exchange.
How quickly and easily a given ABS can be sold determines its marketability. In general, for an ABS to enjoy high marketability, there must be a significant trading volume and a large number of dealers in the security. As the market has grown, all ABS, including HELs and manufactured-housing contracts, have become increasingly liquid and marketable. The two most mature sectors of the ABS market—publicly offered, investment-grade ABS backed by credit cards and auto loans—have liquidity generally greater than that of corporate bonds and approaching that of the U.S. Treasury market.
The liquidity and marketability of newer varieties of ABS vary widely, with the newest and less frequently traded types, of course, being the least liquid.
Investors should keep in mind that if they sell any ABS early—that is, before the final principal payment is made—the securities may be worth more or less than their purchase price.
All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association from our membership and other sources believed by the Association to be accurate and reliable. By providing this general information, the Securities Industry and Financial Markets Association makes neither a recommendation as to the appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions.