I haven’t consulted the ABX (asset-backed securities index) / CDX (credit default swaps) / CMBX (collateralized mortgage-backed securities index) markets in a long time. They were fantastic leading indicators in July and August, and a little bit in October and November again, but since then they pretty much died down, and anyways, it was getting difficult to imagine that The Credit Crunch hadn’t finally been priced in. Furthermore, the TED spread became predictive of what the Markit.com credit indices would do.
After Buffett started Berkshire Assurance, I figured the monoline situation was basically going to be fine, making the credit crunch little more than a totally exhausted MSM(eme).
But, the credit markets are starting to vomit again. I am pretty sure the latest move was not presaged by a drastic move in the TED spread (the spread between 3-month Libor and 3-month Treasuries, currently 150 basis points).
Here’s the latest roll of AAA ABS:
Here are emerging market credit default swaps —
And AAA collateralized mortgage-backed securities:
Mostly just ABX turmoil, so far. (Btw: the red lines indicate yield, the inverse of price. So skyrocketing red lines mirror plunging debt prices. The left axes denominate yield; the right axes denominate bond prices.)
Bear Stearns took a real plunge today, down to $78.80 (-6%). There were a lot of reports of BSC paying hedge funds large amounts of money to hold garbage debt for one or two years (same for Merrill and Citigroup), which the bleeding banks *must* buy back. But then the SEC started to shut those down. Maybe one of the big boys had to take back some garbage and fire-sell it.
In any case, this will only add to the Wall St. screaming for a 50 basis point rate cut in the Fed’s January meeting. Not to mention the repos; the FHLBs; the TAF; and other mechanisms by which the government is bailing out the banks on the taxpayers’ dime.