Some ABX Indexes Rise, Fueling Optimism

The way the S&P 500 index held up last week to finish with a 4% gain in the face of mounting job losses and other bad news may raise suspicions among the cynical that it's the handiwork of the infamous Plunge Protection team (see Dec. 7, 2006 post). But Lehman Brothers did succeed very well at raising new capital. And fresh reports in the Financial Times of London solidified rumors that central bankers were in discussions to buy up mortgages from troubled banks. Increased anticipation of a price support plan for the dodgy mess of subprime mortgages -- probably the one silver bullet that could quell this crisis -- was probably the key prop for the stock market last week.

That the anticipation is real can be seen in the uptick in several ABX Indexes (which measure the performance of a basket of credit default swaps on U.S. subprime home loans). The rises show that hedge funds and others are more willing to buy the swaps and take on the risk of insuring subprime mortgages against default. One of the better gains was in the ABX-HE-AAA 06-1 series (covers triple-A series issued in first half of 2006) as can be seen on the Markit website link (once there, click on the URL for the series).

Comments

[MattBlackman]

Uptick? What uptick? If anything, looks more than a moribund dead-cat bounce where there is any upward movement but then it immediately rolls over. Markit.com ABX Indexes
www.markit.com/informa...