Friday, February 9, 2007

How Low Will It Go - ABX Subprime BBB- Index Plunges Further

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.

7 comments:

Jason said...

looks like the party is ending...

http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_N/threadview?m=me&bn=24576&tid=23766&mid=23766&tof=17&frt=2#23766

http://www.nationalmortgagenews.com/

Jim K said...

good gravy! thanks for the heads up.

Jason said...

more of the same:

http://www.brokeruniverse.com/hearing/

http://www.mortgage101.com/partner-scripts/inman.asp?ID=62150

igor said...

Great focus, Jim.

That BBB- ABX is one hot potato! I bet no one could think how quickly it can deteriorate, because it all low risk and insured. The margin calls must have been happening for 2 months now. The smart money (aka Merrill Lynch) is pulling out to cut losses before it gets ugly.

What do you think of latest COTs for Crude? The recovery on commercial buying looks pretty bullish to me.

Jim K said...

Total open interest is still not too far below all time highs at 1.298 mln. As the commercials have upped their length who will deliver their barrels? fun times ahead next week.

igor said...

Since KSA and Mexico announced cutting deliveries to refineries, the commercials must be buying oil in the open market. The funds and small specs will need to hire drillers to pump lots of oil for delivery. :)

I like your commentaries. Keep it up!

Jim K said...

thanks... i need to write more about May-hee-co and the problems they're having with their biggest oil field.. can you imagine that seawater is actually starting to flood it out?