Post by jeffolie on Jan 29, 2007 16:46:39 GMT -6
January 28, 2007
Sub-Prime Mortgages - ABX Index
The value of sub-prime mortgages, as expressed in the coupon value of the ABX-HE-BBB- 06-2 derivative, is still falling. In the past two trading days, the index made another downward leg movement. This is significant for housing derivatives markets insofar as the ABX is signalling the growing potential of sub-prime mortgage failures to affect the amount of housing inventory to come on the market in Spring/Summer 2007.
Here are the ABX BBB- 06-02 values at the beginning of January 2007.
www.markit.com/cache/curves/536db309d827649dd6f0b6d5370.png
For fun let's start with the Markit.com's ABX-HE-BBB- 06-2 index for buying protection on low-rated, or BBB-minus, subprime mortgage bonds.
That would be a chart showing a decline. If you were on a diet, this would be a great chart. If this were the price of gas at the pump, this would be a great chart. But this chart illustrates an index which falls as demand rises for insurance (credit default swaps) against defaults on securities backed by subprime mortgages (loans given to folks with bad credit). Don't let the cheerleading on what is the only financial channel with consistent national cable carriage (CNBC) fool you, there's a lot of distress in the housing market especially in this realm of subprime borrowers who borrowed with little or no money down, or were coaxed into the borrowing with low teaser rates that are now resetting at rates maybe a killing 3 or 4 percentage points higher. These borrowers either face the prospect of not being able to pay their mortgages as the payments reset higher, or because they put nothing down, they now 'own' a house that is worth less than what they owe, making them more apt to give the keys to the lender, or default.
But this chart illustrates an index which falls as demand rises for insurance (credit default swaps) against defaults on securities backed by subprime mortgages (loans given to folks with bad credit). Don't let the cheerleading on what is the only financial channel with consistent national cable carriage (CNBC) fool you, there's a lot of distress in the housing market especially in this realm of subprime borrowers who borrowed with little or no money down, or were coaxed into the borrowing with low teaser rates that are now resetting at rates maybe a killing 3 or 4 percentage points higher. These borrowers either face the prospect of not being able to pay their mortgages as the payments reset higher, or because they put nothing down, they now 'own' a house that is worth less than what they owe, making them more apt to give the keys to the lender, or default.
That distress has been reflected in the recent slump in bonds. It is clear the bond market has detected trouble in the subprime area of the credit world even as the credit markets otherwise look to be in good shape.
buttonwood1792.blogspot.com/2007/01/some-saturday-thoughts.html
Sub-Prime Mortgages - ABX Index
The value of sub-prime mortgages, as expressed in the coupon value of the ABX-HE-BBB- 06-2 derivative, is still falling. In the past two trading days, the index made another downward leg movement. This is significant for housing derivatives markets insofar as the ABX is signalling the growing potential of sub-prime mortgage failures to affect the amount of housing inventory to come on the market in Spring/Summer 2007.
Here are the ABX BBB- 06-02 values at the beginning of January 2007.
www.markit.com/cache/curves/536db309d827649dd6f0b6d5370.png
For fun let's start with the Markit.com's ABX-HE-BBB- 06-2 index for buying protection on low-rated, or BBB-minus, subprime mortgage bonds.
That would be a chart showing a decline. If you were on a diet, this would be a great chart. If this were the price of gas at the pump, this would be a great chart. But this chart illustrates an index which falls as demand rises for insurance (credit default swaps) against defaults on securities backed by subprime mortgages (loans given to folks with bad credit). Don't let the cheerleading on what is the only financial channel with consistent national cable carriage (CNBC) fool you, there's a lot of distress in the housing market especially in this realm of subprime borrowers who borrowed with little or no money down, or were coaxed into the borrowing with low teaser rates that are now resetting at rates maybe a killing 3 or 4 percentage points higher. These borrowers either face the prospect of not being able to pay their mortgages as the payments reset higher, or because they put nothing down, they now 'own' a house that is worth less than what they owe, making them more apt to give the keys to the lender, or default.
But this chart illustrates an index which falls as demand rises for insurance (credit default swaps) against defaults on securities backed by subprime mortgages (loans given to folks with bad credit). Don't let the cheerleading on what is the only financial channel with consistent national cable carriage (CNBC) fool you, there's a lot of distress in the housing market especially in this realm of subprime borrowers who borrowed with little or no money down, or were coaxed into the borrowing with low teaser rates that are now resetting at rates maybe a killing 3 or 4 percentage points higher. These borrowers either face the prospect of not being able to pay their mortgages as the payments reset higher, or because they put nothing down, they now 'own' a house that is worth less than what they owe, making them more apt to give the keys to the lender, or default.
That distress has been reflected in the recent slump in bonds. It is clear the bond market has detected trouble in the subprime area of the credit world even as the credit markets otherwise look to be in good shape.
buttonwood1792.blogspot.com/2007/01/some-saturday-thoughts.html