ABX Trading Higher In July 2008

The Street has been bullish on the ABX trading the last couple weeks. AAA bonds from the 06-01 Index have been trading higher in 9 out of the past 11 sessions (includes today’s intraday quote). I’m not saying we’ve hit bottom, but definitely showing encouraging signs in the housing market from the Street’s perspective.

The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages. ABX contracts are commonly used by investors to speculate on or to hedge against the risk that the underling mortgage securities are not repaid as expected. The ABX swaps offer protection if the securities are not repaid as expected, in return for regular insurance-like premiums. A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments. Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.