The most pressure is building in mortgages. The ABX (residential) and CMBX (commercial) indexes are declining fast, many of them making new all time lows - including the highly rated tranches. There is obviously an increased push to hedge CDO inventory sitting in dealers' hands and various portfolios, SIVs included. Fresh downgrades from S&P and losses at mono-line insurers are also a significant factor, as is Cheyne's latest announcement about its SIV.
Some charts from Markit:
ABX: AA tranche for the latest 2007 vintage
ABX: BBB- tranche for the latest 2007 vintage
The CMBX charts, tracking commercial real estate loans, are inverted, i.e. they show yield spreads.
CMBX: A tranche
CMBX: BBB tranche
Repeat of August? Who knows, but just like then CDX spreads are slowly rising once more (corporate bond risk) and so are LCDX spreads (LBO loan risk). You can follow those on Markit's site, too. Doesn't look good.
Posted by Hellasious at Thursday, October 18, 2007 ______________________________________________________________
9 comments: David said... Thanks Hellasious. I was hoping you would post about the ABX indices again. I saw them sinking and was waiting for your take.
October 18, 2007 11:37 AM Mane said... By the way, the head of Bank of Finland, Mr Liikanen, said yesterday that (Finnish) banks should just tell how much bad loans they have in their books. According to Mr. Liikanen, the banks are strong enough to realize the losses. This would then increase trust in markets in general, etc, says Mr. Liikanen.
I just wonder whether he really knows what he is talking about. How can he know that the banks are strong enough?
And by the way, the banks have to take in the losses anyway, sooner or later. I do not see how doing it sooner would really make any difference.
October 18, 2007 12:57 PM Sandro said... CMBX is not so bad yet, you've managed to pick the worst charts. Should be a hint that commercial real estate is finally getting weak.
October 18, 2007 2:16 PM Hellasious said... CMBX not so bad? Au contraire..
Yesterday's housing starts decline came almost entirely from the multi-unit sector, down 36% (that's considered commercial lending). All those condos in FL... But that was to be expected, as I had noted months ago, when CMBX first weakened. To paraphrase Vince Lombari: to a commercial developer cost of money is not the only thing - it is everything. When spreads rise so much they simply stop building.
Regards
October 18, 2007 3:28 PM Hellasious said... Vince Lombardi, of course..
October 18, 2007 3:28 PM Anonymous said... Question: Is there a way for a normal retail investor to profit directly from this?
eh
October 18, 2007 4:33 PM DRPI said... More on the MLEC maneuver.
October 18, 2007 5:14 PM Anonymous said... I would be checking on the term "real estate investor". If you are talking about housing, there is no such thing.
October 18, 2007 6:17 PM Anonymous said... Thank you Hellasious, thus the jawboning about a new rate cut by the FED is not ainsi pour parler... ;)
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