ABX Plunge

As mentioned this morning certain areas of the debt market are in full blown panic all over again. Below is the ABX which continues to plunge.

This is amazing below from LaSalle Street. Can anyone say implosion (bankruptcy) at ACA, RDN, and the big one MBI among others????

To your charts. the ABX 07-02 BBB-index has a coupon of 5.00%. It has a maturity of 5 years. It's price yesterday was 29.44 making it yield 51.31%. If you want to buy protection against the tranche defaulting, it's going to cost 51% A YEAR. In other words, the market thinks this tranche is toast, it has for months, the argument now is how long until it defaults. Current prices suggest about 14 more months.

The ABX 07-02 AA index has a coupon of 1.92% and closed yesterday at 77.78. This puts its cost of default insurance at 8.94% PER YEAR.

Incidently, the ABX 07-02 BBB tranche is trading with a yield of 45.71%, so the market thinks that is toast too, again only arguing how long until it defaults. The ABX 07-02 A tranche is trading at a yield of 26.61%, so this tranche is also perceived to be toast with the markt thinking it will take about 4 years to kill off the BBB- and BBB tranches before defaults pile of enough to kill off this tranche.

Is it significant these are trading lower. OF course. But bear in mind current levels suggest the market thinks the BBB-, BBB and A tranches are gone; it is only arguing about the time of death. The AA and AAA tranches look like they should survive.