US subprime CDS prices recover after June losses
Prices on U.S. subprime credit default swaps rose in July after falling a month earlier when the suspension of Maiden Lane II auctions dampened the outlook for CDS prices, Fitch Solutions said Monday. The agency released a report Monday, which shows U.S. subprime CDS prices rising 1% in July, recovering most of the segment's losses from a month earlier. The 2006 and 2007 vintages fared the best, experiencing their largest price gains in the past year, with 2006 prices rising 5.2% year-over-year and the 2007 vintage jumping 48.6%. The overall index grew 39%. "The increase for 2006 prices is particularly notable because this vintage has significantly underperformed its peers over the past year," said Fitch senior director Alexander Reyngold. "That being the case, the 2006 price increase still pales noticeably when put up against the movement of the index overall." Fitch Solutions said loan performance overall was mixed in July as the 90-day plus delinquency rate fell by 1.4%, hitting 10.8%, a new low for the year. "Balance modifications may be playing a role in keeping 90-day plus delinquency rates low," said Fitch director David Austerweil. "The percentage of subprime loans with balance modifications has increased by 120% over the last year to reach a high of 5%. The 60-day plus delinquency rate for balance modified loans was 18% last month; it was 29.4% one year ago." The reversal in CDS prices in July followed a price downturn in June, which was caused by slowing demand for Maiden Lane II assets that the Fed acquired from American International Group during the 2008 financial crisis. The report from June reversed a seventh-month trend in which U.S. subprime credit default swaps rose each month. Subprime CDS prices fell 1.8% in June, breaking a seven-month rally, before recovering again last month. Write to: Kerri Panchuk.