Subprime ABX Derivative Index Hits New Low At 45
Last update: 7/16/2007 11:42:31 AM
By Anusha Shrivastava
Of DOW JONES NEWSWIRES
NEW YORK(Dow Jones)--Even with the absence of negative subprime-related headlines that have roiled the markets in the past few weeks, the index based on subprime mortgages is hitting new lows on Monday.
The riskiest tranche of the current index, the BBB- of the ABX.HE 07-1, touched 45 cents on the dollar in morning trade, according to Alex Pritchartt, a trader at UBS.
"The stuff is a lot softer," Pritchartt said. "Sellers want to offset risk and sell the stuff."
Trading volume is up but is not unusually heavy, he noted.
The ABX index series is linked to 20 subprime home equity loans through a basket of credit default swaps. The index is often used to place bets on the slowdown in the housing market and to express views on how poorly the subprime sector is likely to perform.
Those who expect the deterioration of subprime mortgage loans to lead to defaults buy protection on the index. Such buying pressures the index wider.
Last week, as ratings agencies downgraded or put on watch more than a thousand mortgage bonds, the index became volatile and moved into record low territory.
Some hedge fund managers who trade the index say they expect the value of the lower tranches of the index to go as low as zero. They also point to the fact that the higher tranches of the most recent index based on loans made in the second half of 2006 are coming under pressure.
A new index, based on loans made in the first half of 2007, is due to launch on July 19.
"The 07-2 will trade below par on July 19," said Andrew Lahde, managing partner of Lahde Capital Management, a hedge fund in Santa Monica, Calif. "The single-A tranche is trading at about 70 cents on the dollar whereas it had been 90 cents on the dollar just a month ago."
-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371; anusha.shrivastava@dowjones.com |
