Asset Backed Securities

ABS and junk bonds are different, but from your post I'm going to assume you're talking about junk ABS. There are three basic types of ABS you can buy: credit card, student loan, and auto. They're pools of collateralized loans that can be fixed (loan structure doesn't change) or revolving (basically, they replenish some of the loans over time).

It is very difficult to perform valuation on ABS and especially junk ABS. You're right in that they trade at a discount due their credit quality but also to a lack of preferred investors in certain areas for ABS, specifically short-term. The market is very illiquid and it can dry up easily, as it did in May and June. In '08 some ABS prices got revalued down to $63 from $85 in a day, at a time when CDS didn't move so credit traders that thought they were hedged lost a lot of money.

My advice is even though your friend may how to do the evaluations, unless you trust him as your financial advisor I wouldn't dabble unless you truly know the structure inside and out. Structured credit is very complicated to begin with and sometimes junk ABS can have a large series of delinquent or non-performing loans in them, you have to know what you're doing before you dabble. Trust me when I say money you actually lose hurts a lot more than money you didn't make. But if you trust your friend with your money then by all means dabble away, just be careful and educate yourself thoroughly before pulling the trigger.