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Countrywide (CFC) shares gained more than 32% Friday: that must mean the market thinks the subprime crisis is over, right? Not at all. For one thing, Friday's close of $17.30 a share puts the company's share price at pretty much exactly where it was all the way back on the 17th of October, just over a week ago. The six-month chart still looks really, really ugly.

And while there was lots of attention on Countrywide's stock price, blogger Calculated Risk was still paying attention to the subprime loan market – you remember subprime loans, they're what triggered this whole mess to begin with. And it turns out that those notorious ABX subprime indices have never looked worse, with AAA-rated paper being particularly hard-hit.

Both Countrywide's stock and the price of credit protection on AAA-rated mortgage-backed securities are forward-looking securities, of course. But the stock market is naturally a far more volatile place, where intraday movements often don't mean very much. The bond and CDS markets, by contrast, are generally much less volatile – indeed, that's the reason why so many investors felt so comfortable playing in those markets with a lot of leverage. So large moves on the fixed-income side of things are likely to be more meaningful than a one-day jump from a very low level in just one stock.

Or, to put it another way, we might have passed the "chaos" part of the credit crisis, when no one had a clue what was going on and very short-term interest rates, especially, started behaving crazily. But some very big bond-market losses might yet still await us – and those, as we've seen, can have nasty systemic implications.

Source: Subprime: It's Still Really Bad