Vikram Saxena

AAA Bonds That Fail the Investment Grade Test

The market is already pricing the risk.
Here is what the different AAA ABX indices are trading at:
Index Series Version Coupon RED ID Price High Low

ABX-HE-AAA 06-1 6 1 18 0A08AHAA1 86.19 100.38 84.17
ABX-HE-AAA 06-2 6 2 11 0A08AHAB8 70.06 100.12 66.1
ABX-HE-AAA 07-1 7 1 9 0A08AHAC6 55.94 100.09 53.46
ABX-HE-AAA 07-2 7 2 76 0A08AHAD4 52.92 99.33 52.47

Another thing to keep in mind: The salvage value for loans on homes in foreclosure varies between 50-80% of the home's equityng depending on the size of the loan and the market condition. Assuming an average recovery of 65%, the number of loans defaulting has to be 3 times the credit support before the bonds get hit. And not all these loans were no-down payment loans; in many cases they homeowners had some equity in the deal.