Anticipation of the much-discussed but now postponed launch of the European residential mortgage-backed securities index (ERMBX) is behind violent swings in spread levels on single-name credit default swaps on RMBS tranches. Markit, ERMBX’s owner, announced that the index’s debut has been delayed because of market volatility. That volatility, in fact, has been caused by buyers of protection on single-name CDS referencing prime RMBS AAAs, say market participants.
The ERMBX.UK, which is designed to reference synthetic UK prime RMBS, has been under discussion for a while, and some dealers have been preparing to make a market in the product by buying protection on single-name RMBS CDSs.
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