US subprime CDS prices rise, vintage 2006 remains troubled
Prices of U.S. subprime credit default swaps rose for the seventh straight month in May, Fitch Solutions said Friday. While subprime CDS prices grew 1.7% overall, individual recovery rates were largely contingent on the transaction's origination date. The 2007 vintage's 4.9% price gain buoyed the overall CDS index, with the 2004 vintage also performing well, Fitch Solutions said. Meanwhile, results from the latest report show prices on the '2006 CDS vintage' performing the worst, with declines of 16.9% so far this year, according to data from Fitch Solutions director David Austerweil. "The 2006 vintage has the dubious distinction of having the highest one-month constant default rate and at the same time the lowest one-month voluntary prepayment rate," said Austerweil. The one-month constant default rate in the 2006 vintage hit 10.8%, while the one-month voluntary prepayment rate is at 0.85%. The 60-day delinquency rate for the 2006 vintage also hit 1.6% last month, prompting Austerweil to conclude the 2006 vintage "indicates a high level of credit impairment among mortgage borrowers." REO loans in the 2006 vintage also are struggling, with their loss severity now at 83.1% and showing signs of increasing pressure. Even though the 30-delinquency rate on subprime loans improved in recent months, that trend reversed itself last month, with the 30-day delinquency rate growing 4.8%. "30-day delinquencies are often a clear warning sign of future increases in default rates so this month's rise should be watched closely," Austerweil said. Write to Kerri Panchuk.