Asset-backed securities index
Encyclopedia
The ABX is a credit derivative swap contract that pools lists of exposures to mortgage backed securities.
In January 2006, CDS Indexco and Markit launched ABX.HE, a subprime mortgage backed credit derivative index, with plans to extend the index to underlying asset types other than home equity loans. The purpose of the indices is to allow investors to trade exposures to the subprime market without holding the actual asset backed securities. The ABX.HE went through four series, each a list of 20 subprime RMBS transactions issued during a six-month period of time beginning in 2006. Each series was in turn divided into lists of specified securities grouped by their initial credit rating, e.g. ABX.HE.BBB.06-1
According to a 2009 New York Times article, Goldman Sachs
used an ABX index to bet against (i.e. short) the housing market in 2006. It also "began marketing short bets using the ABX index to hedge funds like Paulson & Company, Magnetar
, and Soros Fund Management
."
On Saturday/Sunday, November 5-6, 2011 in "Prime Signs of Pain Emerge", the Wall Street Journal offered an extensive and literate discussion of fall of the "PrimeX Index" which (to paraphrase the WSJ) focuses on " . . . prime-mortgage bonds . . . that are supposed to be of high quality". WSJ Author Katy Burne suggests that "Prime Mortgages" are now in increasingly deep trouble which portends a collapse in the value those securities thus mirroring the earlier collapse of subprime mortgages.. Katy Burne points out that just as John Paulson bet against subprime mortgages (presumably in 2006-2008), a new class of speculators and hedgers are now lining up to bet that homeowners with prime-mortgages will walk away from their houses as their values go "under water".
In January 2006, CDS Indexco and Markit launched ABX.HE, a subprime mortgage backed credit derivative index, with plans to extend the index to underlying asset types other than home equity loans. The purpose of the indices is to allow investors to trade exposures to the subprime market without holding the actual asset backed securities. The ABX.HE went through four series, each a list of 20 subprime RMBS transactions issued during a six-month period of time beginning in 2006. Each series was in turn divided into lists of specified securities grouped by their initial credit rating, e.g. ABX.HE.BBB.06-1
According to a 2009 New York Times article, Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
used an ABX index to bet against (i.e. short) the housing market in 2006. It also "began marketing short bets using the ABX index to hedge funds like Paulson & Company, Magnetar
Magnetar Capital
Magnetar Capital is a hedge fund based in Evanston, Illinois. Among its many activities, the firm was actively involved in the collateralized debt obligation market during the 2006–2007 period...
, and Soros Fund Management
Soros Fund Management
Soros Fund Management LLC is an American, privately held, hedge fund management firm founded in 1969 by George Soros. In 2010 it was reported to be one of the most profitable firms in the hedge fund industry, averaging a 20% annual rate of return over four decades.-Overview:Soros Fund Management...
."
On Saturday/Sunday, November 5-6, 2011 in "Prime Signs of Pain Emerge", the Wall Street Journal offered an extensive and literate discussion of fall of the "PrimeX Index" which (to paraphrase the WSJ) focuses on " . . . prime-mortgage bonds . . . that are supposed to be of high quality". WSJ Author Katy Burne suggests that "Prime Mortgages" are now in increasingly deep trouble which portends a collapse in the value those securities thus mirroring the earlier collapse of subprime mortgages.. Katy Burne points out that just as John Paulson bet against subprime mortgages (presumably in 2006-2008), a new class of speculators and hedgers are now lining up to bet that homeowners with prime-mortgages will walk away from their houses as their values go "under water".
External links
- ABX Marks US Subprime Mortgage Inventory At Approx. 65 Cents On The Dollar, Housing Derivatives blog, March 1, 2008. Retrieved June 25, 2009.
- Gary GortonGary GortonGary B. Gorton is an American economist who currently serves as professor at Yale School of Management. He is a central figure in the study of the global financial crisis of 2008–2009.-Life and career:...
. 2009. "Information, Liquidity, and the (Ongoing) Panic of 2007." American Economic Review, 99(2): 567–72. (Fee-based.)