Rally on subprime CDS prices ends with Maiden Lane suspension
The suspension of Maiden Lane II auctions by the Federal Reserve at the end of June dampened the outlook for prices of U.S. subprime credit default swap prices, Fitch Solutions said Wednesday. The slight reversal in demand for Maiden Lane II assets, which the Fed acquired from American International Group (AIG), ended what had become an unprecedented rise in subprime CDS prices, according to analysts at the ratings agency. In May, U.S. subprime credit default swaps rose for the seventh month in a row, a positive trend that reversed course last month. Overall, subprime CDS prices fell 1.8% in June, breaking a seven-month rally, in which prices experienced a 126% surge, Fitch said. "Maiden Lane's subpar auction results have left an abundance of future subprime supply that will continue to pose as a short-term negative for subprime CDS prices," reported David Austerweil, director of Fitch Solutions. "Price declines were evident in most vintages, with only the 2007 vintage increasing by 4.6%. In contrast, the 2004 and 2005 vintages declined by 1.9% and 2.9%, respectively. The 2006 vintage declined by a more modest 63 basis points after last month’s negative 8.4% drop," Austerweil added. Delinquencies in the sector also rose with the 30-day delinquency rate rising 2.3% over the previous month and the 60-day delinquency rate shooting up 7.6%. The 2007 vintage alone experienced a 3.1% jump in delinquencies. "After several months of stagnancy, the loan delinquency and foreclosure pipeline is beginning to move again," said Alexander Reyngold, senior director at Fitch Solutions. "There was an increase in loans moving to the later stages of delinquency last month. There was also a significant increase in loans moving from foreclosure to real estate owned. If a trend develops where a higher percentage of late-stage delinquency loans become real estate-owned, the foreclosure backlog may begin to clear." Write to Kerri Panchuk.