It stands for asset backed security; a security that is created by means of a process called “securitization“- the creation of securities backed by pools of financial assets. The underlying assets of a pool are typically auto loans, mortgages, home equity loans, aircraft leases, credit card receivables, and business loans. These financial assets represent contractual obligations to pay interest and repay the principal amount, over time.

The holders of a security receive income payments that are derived from and collateralized by a clearly identified pool of underlying assets. The pool of assets (bundled assets) represents a group of fragmented and illiquid assets which cannot be securitized or sold individually.

A specific form of such securities is the mortgage-backed securities (MBSs), in which the collateral is residential or commercial mortgage loans.