CMBX Dives On ABX Contagion
The commercial mortgage backed derivative index, the CMBX, widened about 22 basis points in one day last week, prompting concern the panic-selling traders have dubbed as 'ABX flu' was spreading.
The commercial mortgage backed derivative index, the CMBX, widened about 22 basis points in one day last week, prompting concern the panic-selling traders have dubbed as 'ABX flu' was spreading. The latest series of the CMBX was at 220 bps Tuesday, after launching Jan. 22 at 185 bps. The BB section of the index appeared for the first time to be widening in sympathy with bad news hitting the housing market, having previously seemed immune to the battering its residential mortgage index sister the ABX was taking (DW, 2/9).
Hedge funds have been selling the ABX as a way to short the housing market—and now it appears funds are taking the same strategy to the CMBX. One CMBX trader said ABX dealers have grown tired of being "the liquidity provider of last resort" for the massive volume of macro hedge funds going short the sub prime market. Traders suggested that certain firms may have reached risk limits for trading ABX with the funds, so the funds turned to the commercial property index--which does not have a sub-prime component--to put on cheaper shorts than those available in the ABX. "Long term, the correlation between the performance of sub-prime and commercial mortgages may be limited at best, but [hedge funds] are causing volatility to spike in the short term, and making money off of that," said one CMBX trader.