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There are no derivatives here. Jefferies was going to sell bonds backed by the loans. The payments on the loans would effectively flow directly to the bondholde
by minimax 10y ago
There are no derivatives here. Jefferies was going to sell bonds backed by the loans. The payments on the loans would effectively flow directly to the bondholders.
A derivative (e.g. a CDS) would be more like a side bet between two (possibly unrelated) parties based on the performance of those bonds.
- vostok 10y agoThis is actually a pretty typical example of a derivative. You can buy these bonds to get exposure to the loans without having to worry about managing them directly. A CDS would be a derivative on a derivative. It would allow you to get exposure to these bonds without worrying about being long or short a particular issue.
- aianus 10y agoBy that logic, S&P 500 ETFs would be 'derivatives' too. (They're not.)
- joncooper 10y agohttps://en.wikipedia.org/wiki/Asset-backed_security https://en.wikipedia.org/wiki/Asset-backed_security
- vostok 10y agoI guess it depends on your definition. It would seem that, from a layman's perspective, ETFs and ABSs are both derivatives. If we look at GGP's comment > Buy up crap, package and obfuscate it, then sell it off as "high quality" crap to investors desperate for yield.
- partytran 10y agoDerivatives generally introduce leverage on a tracked asset. Leverage isn't a feature of securitized loans.