Housing Derivatives - ABX Subprime Mortgage Index 07-1 Series Making Steepest Decline

Discussion in 'Economics' started by ASusilovic, Oct 24, 2007.

  1. The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages. ABX contracts are commonly used by investors to speculate on or to hedge against the risk that the underling mortgage securities are not repaid as expected. The ABX swaps offer protection if the securities are not repaid as expected, in return for regular insurance-like premiums. A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments. Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.

    So far this week, the 07-1 series is settling its trading on its lifetime lows for all but the AAA tranche. The BBB and BBB- tranches are about to break the 20% level. The 07-1 tranche cover 20 subprime mortgage bonds issued in the second half of 2006, coinciding with the high in the national real estate market.

    Source: Markit http://www.markit.com/information/products/abx.html
  2. yes this is a good indicator of some inside bad news.

    e.g. the countrywide story.

    this whole thing is a mess and i dont think most traders realize the scale and size of this.

    im following the itraxx crossover in europe and that was well bid at the beginning of last week before the stocks woke up and sold off.