An Asset-Backed Security (ABS) is a financial instrument that is backed by a pool of underlying assets, such as loans, leases, or receivables. These assets generate cash flow, which is used to pay interest and principal to investors. Common types of assets include auto loans, credit card debt, and mortgages. Investors in ABS receive payments based on the performance of the underlying assets. This structure allows for diversification and can provide higher yields compared to traditional bonds. However, the risk associated with ABS depends on the quality of the underlying assets and the economic conditions affecting them.