Merrill Lynch & Co. Inc. has launched a new U.S. Agency Collateralized Mortgage Obligation (CMO) Index series designed to tracked the performance of this US$1.2 trillion asset class.

The new Index currently includes 1,173 constituents having a total capitalization in excess of US$363 billion. Data sets of returns and risk characteristics are available back to December 1996. Additional sub-indices are also available that segment the market by tranche type and average life.

“The Merrill Lynch US Agency CMO Index is the first to tackle this large, complex asset class,” said Phil Galdi, managing director of the firm’s global bond index & analytics group. Merrill Lynch initially began tracking CMOs in support of the growing number of BookMark indices that it has constructed for insurers over 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,” added Galdi.

“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,” commented Akiva Dickstein, managing director and co-head of the U.S. rates and structured credit research group.

The CMO Indices are compiled daily and are available, along with Merrill Lynch’s entire compliment of over 3,500 bond indices, on a wide variety of distribution platforms, including the Merrill Lynch Global Index System which can be accessed on Bloomberg or the Merrill Lynch Index website

The new index is “rules-based,” meaning that bonds must meet a defined list of criteria to be included. Qualifying securities must 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 US$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.