WTF is going on in the ABX Markets?
Its one thing when we see that the BBB- bonds -- the junkiest sub-prime crap in the Residential Mortgage Backed Securities (RMBS) universe -- getting shellacked due to foreclosures.
But today, we see that the AA and even the AAA are getting whacked. It looks like either a fund is getting liquidated across all asset qualities -- or someone is panicking.
UPDATE: July 16, 2007 7:28pm
On the train home, I bump into a friend from UBS, who reminds me that triple AAAs contains up to 8% toxic sludge, while the double AAs contain up to 12%.
As we mentioned this morning in the Beyond the 'Wall of Worry,' perhaps the focus has been in the wrong place -- not the low quality junk, but the supposed AAA stuff . . .
>
Very ominous charts (all via Markit):
Triple A (AAA)
2007
2006
Double A (AA)
2007
2006
Maybe there is a problem at Bear Stearns.
Regardless, looks like another hardly efficient market . . .
Monday, July 16, 2007 | 04:55 PM | Permalink
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» Beyond the 'Wall of Worry' from The Big Picture
There is an interesting article in the Money Investing section of the WSJ this morning: What Could Topple Bulls' 'Wall of Worry'?. The wall of worry idea is that stocks can still flourish when people are nervous. Skeptics hold money on the sidelines. A... [Read More]
Tracked on Jul 16, 2007 7:37:45 PM
» Bear Stearns doom andgloom from Phorgy Phynance
Over on Nuclear Phynance I predicted that today would be an interesting day
Posted July 8, 2007:
All I can add is that I think July 16 will be an interesting day
The reason being that Bear Stearns was suppose to report their losses today... [Read More]
Tracked on Jul 16, 2007 8:12:41 PM
» US FX Morning Note - Street Views from Econocator
ABN - Global FX Daily
Discussing sub-prime and the sudden fall in the ABX index, ABN expects the USD to suffer the brunt of the FX fall out while high yielding currencies remain resilient:
The market has got used to talking about sub-prime and is no l... [Read More]
Tracked on Jul 17, 2007 7:58:15 AM
» The Big Picture | WTF is going on in the ABX Markets? from The Capitalist Resistance
Link: The Big Picture | WTF is going on in the ABX Markets?. WTF is going on in the ABX Markets?This is from about a month ago, but it is a bit on the ABX [Read More]
Tracked on Aug 1, 2007 7:58:05 PM
Comments
I mean its only 5% -- but its AAA fer cryin out loud!
Posted by: Barry Ritholtz | Jul 16, 2007 4:59:32 PM
Well, I haven't heard much about this today. It will be interesting to see whether it gets press and if there is followthrough to the downside...
Posted by: Chief Tomahawk | Jul 16, 2007 5:00:23 PM
Could the other option be that some investors now realize that the lack of compliance and rampant fraud over the past 2-3 years could mean that AAA are not really AAA quality and they are getting out? What does this mean to pension funds????
Posted by: bbb | Jul 16, 2007 5:00:47 PM
Looks like someone jumped out the window. On the 99th floor.
Posted by: semper fubar | Jul 16, 2007 5:01:13 PM
I can see someone in a boardroom somewhere explaining to the CEO what is going on. Pointing to the chart and circling the cliff , "It is right about here where we think something went wrong."
Posted by: Cal | Jul 16, 2007 5:06:07 PM
i understand the single and double A finally dropping -it seemed like something was artificially holding them up. and expected losses should rise as you go down in seniority
but AAA now implying 4.5% losses? THAT will be an interesting world to live in.
If this keeps up, I am buying a handgun instead of another slug of these *sigh* worthless QQQQ puts.
WTF indeed.
James Sivco
Houston, TX
Posted by: jpsivco | Jul 16, 2007 5:08:58 PM
everyone should run, not walk, to read what some of the minyanville professors have to say about these indices. those prices you are seeing don't do the actual prices justice. they are much lower than the print you are seeing. it's explained in great detail at minyanville.com. scary stuff.
Posted by: Michael A | Jul 16, 2007 5:13:49 PM
is this to do with it?
Subprime Downgrades Sideline ABS Issuance
Asset Securitization Report--SourceMedia (July 16, 2007)
Donna Mitchell
The asset securitization market usually does not stop issuing new deals for any reason, except perhaps the usual holiday breaks. After enduring several days of downgrades on subprime MBS by Moody's Investors Service, and warnings of more from Standard & Poor's, however, the ABS market largely decided to hold back from issuing new debt last week.
http://www.securitization.net/article.asp?id=1&aid=7470
Posted by: S Pearman | Jul 16, 2007 5:17:13 PM
Perhaps this is one of the reasons why treasuries were steady today on some unwinding of spreads.. I really could'n put my finger on that, although I must admit that I haven't been too diligent today... Taking a few days off...
Could we be seeing the beggining of the "now you dont phase of the global "now you see" it liquidity.. There was a slight divergence Dow/S&P.. Any thoughts on this....
Econolicious
Posted by: ECONOMISTA NON GRATA | Jul 16, 2007 5:23:41 PM
Alt-A's are starting to stink up the joint.
Posted by: Kp | Jul 16, 2007 5:24:00 PM
I'm thinking they're going to need a bigger container!
Posted by: Stuart | Jul 16, 2007 5:25:15 PM
"Hefty Hefty Hefty!"
not....
"Wimpy Wimpy Wimpy"
Posted by: Kp | Jul 16, 2007 5:26:27 PM
Frankly, I'm disappointed the market did not climb on this news.
Posted by: Mike M | Jul 16, 2007 5:43:10 PM
Do some research, there is absolutely no correspondence between the AAA, etc ratings used in the mortgage CDO market and the formerly sane bond market with respect to default rates. In the lowest investment grades the CDO default rate is 10 times greater than the same rated corporate bond. Perhaps the use of the same rating letters was an inadvertant mistake by the rating....
Posted by: Neal | Jul 16, 2007 5:47:48 PM
dont worry the Bernake/Paulson put will keep this market intact, the PPT is on call.
Posted by: econ101 | Jul 16, 2007 5:55:50 PM
From the economist: "AAAsking for trouble"
http://www.economist.com/finance/displaystory.cfm?story_id=9482945
About this CDO trap, plus quote: "According to Standard & Poor's (S&P), a rating agency, only six American non-bank companies carry a triple-A rating today, including Berkshire Hathaway and General Electric."
Posted by: mhm | Jul 16, 2007 6:07:35 PM
Also MER reports tomorrow, so this drop could be a preventive move or somebody knows something.
Posted by: mhm | Jul 16, 2007 6:10:49 PM
What follows are excerpts from Absence of Fear, an excellent article written by Robert L. Rodriguez at First Pacific Advisors.
We were on the March 22 call with Fitch regarding the sub-prime securitization market’s difficulties. In their talk, they were highly confident regarding their models and their ratings. My associate asked several questions.
FPA: “What are the key drivers of your rating model?”
Fitch: They responded, FICO scores and home price appreciation (HPA) of low single digit (LSD) or mid single digit (MSD), as HPA has been for the past 50 years.
FPA: “What if HPA was flat for an extended period of time?”
Fitch: They responded that their model would start to break down.
FPA: “What if HPA were to decline 1% to 2% for an extended period of time?”
Fitch: They responded that their models would break down completely.
FPA: “With 2% depreciation, how far up the rating’s scale would it harm?”
Fitch: They responded that it might go as high as the AA or AAA tranches.
Posted by: ron | Jul 16, 2007 6:30:03 PM
this is a great article that might explain some further problems at bear:
http://www.bloomberg.com/apps/news?pid=20601087&sid=akelO4PqGUco&refer=home
Posted by: jim r | Jul 16, 2007 6:30:36 PM
CMBX indexes performed just as bad today. Contained, yeah right...
Posted by: Matt Heaton | Jul 16, 2007 6:34:24 PM
Institutions selling all subprime after rough Q?
Posted by: FG | Jul 16, 2007 6:39:01 PM
OH yea....don't forget we're in the "black out period".
Ciao
MS
Posted by: michael schumacher | Jul 16, 2007 6:54:53 PM
Isn't it odd that uranium also sold off today? I suspect that was uranium owned as a commodity speculation and not for true use.
Is there someone out there with a powerful need to deleverage and raise cash by selling everything NOW?
Posted by: Fred | Jul 16, 2007 7:14:59 PM
CMBX indexes performed just as bad today. Contained, yeah right...
Speaking of uranium, if you take the CMBX shooting up and collide it into the ABX shooting down... maybe they negate each other and we have no problems?
Kinda like putting matter and anti-matter together, they also negate each other and nothing remains... er, except for a 'little' energy.
I may have gotten a 'C' in quantum chemistry but I got an 'A' in economics!
Posted by: dryfly | Jul 16, 2007 7:32:28 PM
Yes Fred...it would seem that there was a liquidation, or bid list that was forced. Buyers are licking their chops.
These ABX markets are a joke...but the sellers are not laughing.
I have not seen other credit spreads (corporate) widening however.
How many here are praying for a correction??
Posted by: jules | Jul 16, 2007 7:39:05 PM
