The AAA tranche of the ABX 06-02 is now trading in the 30s. The bonds that were rated AAA investment grade at the time of securitzation back in 2006 are now trading at 37 cents on the dollar. Just goes to show the severity of the housing crisis and also the incompetence of the rating agencies. The goal of the rating agencies, such as S&P and Moody’s, were obviously to pump out quantity over quality of the assets. The blatant failure of their responsibilities is now causing the American citizens to shoulder the burden of this economic crisis and recovery.

ABX06-02 Trend

How low can this the ABX index go
The longer the equity market struggles, the more it will drag down the housing market. With an unemployment rate at it’s highest since the great depression, family are hardpressed to save up for a rainy day let alone thinking about jumping into the largest investment a family can make. Experts on air have been voicing their caution about the risk of investments for the rest of 2009. If the equities can’t recover first, there’s just no way real estate will see any bottom in the near future. ABX will follow the chart of the likes of Citigroup and Bank of America, a downhilll decline that you can snowboard on.

ABX HE-6-02 AAA

Basic technical chart reading will suggest that this index has already broke the support and spiraling down. Hopefully my amateur chart analysis is dead wrong.

What is ABX

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.