Acronymic Angst
November 18th, 2008 1:38 pm | by John Jansen |There is carnage in the asset backed markets again. I am not well versed on this stuff but in cobbling together a story it is pretty ugly. So by way of example one derivative veteran noted that the last cash flow AAA pieces of the ABX Index have declined 14 points in the last month.The failure of the Administration to roll out the TARP has done major damage in the cash CMBS market. AAA paper in this market is trading swaps plus 1000 basis points. Investors in the sector did not load up the boat in anticipation of higher prices but the anticipation of the Administration as White Knight did act to motivate some potential sellers to congregate on the sidelines. With the news that the White Knight will not arrive, many of those folks are now disengorging themselves of securities.
The CMBX index has widened 75 basis points today and has moved 250 basis points in the last 5 days. Market participants inform me that insurance companies are loaded to the gills with this stuff and are probably feeling quite uncomfortable.
Most of the participants felt that the pressure to unload this stuff would be unrelenting between now and year end and it is likely that spreads will continue to widen.
3 Responses to “Acronymic Angst”
By TraderX on Nov 18, 2008 | Reply
Institutional hopes were being pinned on the TARP to get rid of MBS and in particular, residential mortgage and HELOC ABS. Without the TARP buyer of last resort, everyone is forced to sit on this paper and hold it until better market conditions arrive. Which may be a very long time from now.