The Markit.com ABX subprime index sank to a fresh low today of 82.68. Put it another way, investors speculating on these riskiest of subprime loans are paying a lot more for protection from default. The BBB- minus tranche has now widened to a record 875 basis points over the Libor rate (holy mackerel). All this following another hammering of shares of subprime company shares, and really shares of most mortgage company stocks.
So protection from defailt on $10 mln of worth these bbb- subprime bonds is quickly moving towards the $1 mln per year mark, or the numbers that, for example, we saw early last year when it seemed as if GM was going to go bankrupt. The big problem here is that this ABX index is gauging an entire industry which is quite different from a situation like GM where its CEO was able to take actions like asset sales, renegotiation of union contracts, job cuts, etc. This subprime problem as reflected by the ABX index is spread out across a wide spectrum of companies and boils down to individuals in distress and isn't easily fixed.
One other ominous factor: The Markit.com site also shows that its AA and AAA-06-2 indexes fell during the past week - not as sharply as the BBB- - but still lower as the perception of risk spreads out through all tranches. Perhaps I should have led with this last paragraph.
HOW TO AVOID FORECLOSURE is this weekend's feature article on the Yahoo! Finance page.