The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Opinion

Credit market fears dislocation contagion

Some dealers have already suffered from the widening of spreads on the ABX index. Will the problems spread?

The dislocation in ABX – the synthetic index of the 20 most liquid US subprime securitizations – has had a remarkably limited effect on the wider credit sector. Regulators will be pleased that despite a 15 point drop in the past months there are no obvious signs of distress elsewhere.

But there might well be some second-order effects from the belated realization that the US subprime market is in trouble. On these pages Euromoney has highlighted not just how serious the problems are but also the threat that the sector’s weakness poses to both the US economy and the financial system [Have Wall Street banks gone subprime at the wrong time? Euromoney December 2006]. The economic impact will be intrinsically linked to the fortunes of structured finance and these second-order effects might take time to have an impact.

The question in market participants’ minds is: will the dislocation overspill to the credit market? Everyone is searching hard for a link, both from a technical perspective but also from a client perspective. Are reinsurers or mortgage providers CDO-friendly names? Will the credit hedge funds be looking at relative value opportunities between credit and ABX?

There are signs that some credit hedge funds are looking at buying ABX – and who can blame them, the implied spread of 850 basis points for the BBB– sub-index offers incredible value on an historical basis.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree