Post by unlawflcombatnt on Jul 18, 2007 14:18:08 GMT -6
Below are excerpts from another article on subprimes and the ABX index from Bloomberg, written by Shannon D. Harrington. The title of the article is
Risk of Subprime Mortgage Bonds Jumps to Record for Second Day
"The risk of owning bonds backed by subprime mortgages rose to a record for a second day as investors continued to bet that losses will mount.
All but one of the 15 so-called ABX indexes fell to a low, according to Markit Group Ltd., which administers the indexes. An index linked to 20 securities rated BBB- and created in the second half of 2006 fell 0.6 percent to 45.02 at 4 p.m. in New York, Markit data show. The ABX-HE-BBB- 07-1 index dropped 7.5 percent yesterday to 45.28.
The indexes have plummeted as investors turned to them as a way to shed risk from potential losses in securities linked to U.S. home loans made to the riskiest borrowers. Moody's Investors Service and Standard & Poor's last week began downgrading bonds backed by the securities.
``The ABX index is the only liquidity that currently exists to hedge or reduce risk'' in the markets for subprime mortgage bonds and collateralized debt obligations, said Carl Bell, who helps manage $63 billion in fixed-income assets as head of the structured-credit team at Putnam Investments in Boston.
The ABX-HE-BBB- 07-1 index has declined by more than half since January. Even ABX indexes tracking the higher-rated bonds fell, as contracts linked to AAA securities slid 0.3 percent to 95.23. About four out of 10 borrowers would have to default for those securities to lose principal....
The index move yesterday triggered a sell-off in derivatives tied to corporate debt and caused the yield on benchmark 10-year U.S. Treasury notes to fall as investors sought the safety of government debt....
The ABX indexes allow hedge funds and investment banks to take positions opposite their exposures to subprime-loan debt and collateralized debt obligations. CDOs repackage securities and slice them up according to risk levels....
The ABX indexes continued the fall today as confidence among U.S. homebuilders fell this month to the lowest in 16 years, signaling the housing market continues to tumble, which makes it tougher for borrowers looking to refinance....
The National Association of Home Builders/Wells Fargo sentiment index declined to 24 this month, the lowest since January 1991....[
New ABX indexes are created every six months by securities firms....They indicate prices for credit-default swaps linked to 20 bonds, not prices for swaps on each....
Derivatives are financial instruments used to hedge risks or for speculation. Default swaps on mortgage bonds offer payments to buyers of protection if the securities aren't repaid as expected, in return for regular insurance-like payments...."
Risk of Subprime Mortgage Bonds Jumps to Record for Second Day
"The risk of owning bonds backed by subprime mortgages rose to a record for a second day as investors continued to bet that losses will mount.
All but one of the 15 so-called ABX indexes fell to a low, according to Markit Group Ltd., which administers the indexes. An index linked to 20 securities rated BBB- and created in the second half of 2006 fell 0.6 percent to 45.02 at 4 p.m. in New York, Markit data show. The ABX-HE-BBB- 07-1 index dropped 7.5 percent yesterday to 45.28.
The indexes have plummeted as investors turned to them as a way to shed risk from potential losses in securities linked to U.S. home loans made to the riskiest borrowers. Moody's Investors Service and Standard & Poor's last week began downgrading bonds backed by the securities.
``The ABX index is the only liquidity that currently exists to hedge or reduce risk'' in the markets for subprime mortgage bonds and collateralized debt obligations, said Carl Bell, who helps manage $63 billion in fixed-income assets as head of the structured-credit team at Putnam Investments in Boston.
The ABX-HE-BBB- 07-1 index has declined by more than half since January. Even ABX indexes tracking the higher-rated bonds fell, as contracts linked to AAA securities slid 0.3 percent to 95.23. About four out of 10 borrowers would have to default for those securities to lose principal....
The index move yesterday triggered a sell-off in derivatives tied to corporate debt and caused the yield on benchmark 10-year U.S. Treasury notes to fall as investors sought the safety of government debt....
The ABX indexes allow hedge funds and investment banks to take positions opposite their exposures to subprime-loan debt and collateralized debt obligations. CDOs repackage securities and slice them up according to risk levels....
The ABX indexes continued the fall today as confidence among U.S. homebuilders fell this month to the lowest in 16 years, signaling the housing market continues to tumble, which makes it tougher for borrowers looking to refinance....
The National Association of Home Builders/Wells Fargo sentiment index declined to 24 this month, the lowest since January 1991....[
New ABX indexes are created every six months by securities firms....They indicate prices for credit-default swaps linked to 20 bonds, not prices for swaps on each....
Derivatives are financial instruments used to hedge risks or for speculation. Default swaps on mortgage bonds offer payments to buyers of protection if the securities aren't repaid as expected, in return for regular insurance-like payments...."