Credit quality of subprime mortgage bonds fell to a record yesterday

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From Bloomberg. “Corporate bond risk soared in Europe by the most in at least three years as debt rating downgrades on U.S. subprime securities triggered a worldwide selloff, according to traders of credit-default swaps.”

“Europe’s iTraxx Crossover Index jumped as much as 41,500 euros to 308,000 euros, the biggest daily move since the index was created three years ago, according to JPMorgan Chase & Co. The CDX North America Investment-Grade Index of credit-default swaps on 125 companies increased $2,500 to $50,750, the highest in 19 months, Deutsche Bank AG prices show.”

“The Crossover index may rise as high as 400,000 euros because of ’subprimemania,’ as well as concern about falling corporate earnings and rising oil prices, Jochen Felsenheimer, head of credit strategy at Italy’s biggest bank Unicredit Group, said in a note to investors today.”

“‘The Goldilocks scenario for credit markets is definitely over,’ Munich-based Felsenheimer said. ‘These rating actions, the biggest ever in the subprime market, have the potential to trigger an even more substantial move in credit markets.’”

“The credit quality of subprime mortgage bonds fell to a record yesterday in New York. The ABX-HE-BBB- 07-1 index that tracks securities rated BBB- fell 7.4 percent to 51.42, according to the index administrator. The index has declined by almost half since January, reflecting the increased likelihood of default on the underlying securities, which have the lowest investment-grade ratings.”

“‘People are very nervous,’ said Alex Moss, who helps manage $94 billion of fixed-income assets at Insight Investment Management in London. ‘There’s a lot of concern the selloff in subprime will feed through to the wider market. Until the market finds a floor, it’s difficult to see where the buys are going to come from.’”