Many in the industry, particularly a few bond traders that I speak with, have said the worst is yet to come in terms of subprime loan performance. The drop I’m seeing in ABX indices this week suggests there might be something to this sort of thinking. Many of the subordinate 2007-1 ABX indices — which correspond to subprime loans made in the second half of 2006 — appear to be falling off a cliff, and reaching levels not seen since February’s collapse. The 2006-2 series isn’t faring much better, either, and is looking alot like the performance of the 2007-1 series. Maybe there’s something to this “the 2006 vintage will be the worst one” sort of thinking, after all. And I can’t help but think that somewhere, John Paulson is smiling. Update: Some readers have already emailed me asking what the ABX is — click here for a full overview. Essentially, the ABX indices track the Home Equity segment of the ABS market.
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