Saturday, 3 November 2007

Where are the ABX 08-01s coming from?


Watch it. The ABX index of a given vintage is supposed to have 20 bonds in it. At the moment, issuance is so light, only 3 qualify according to Wachovia via CreditFlux. That will make it extremely difficult for the ABX to continue in its current role of barometer of the crash, assuming it goes into 2008.

Alea further points out the bid/offer spreads are so wide that even now the veracity of ABX-derived marks is somewhat questionable. Certainly trying infer the possible losses of a player - Merrill, UBS or Citi for example - from the ABX is a very approximate business. This is particularly so for the AAAs since the ABX index member may have significantly different subordination from the position held. In some securitisations, for instance, there are as many as 5 AAA bonds, with the real supersenior much safer than the lowest AAA.

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