Indicator Of Perceived Risk Goes Skyward

[strbear]

The iTraxx Crossover index of derivatives on mainly junk-rated debt, a barometer of European corporate credit risk, rose sharply on Wednesday. The cost of insuring €10m worth of this index against default jumped above €300,000 annually before subsiding to about €295,000, up 10 per cent on the day.

The equivalent US index was also hit by credit concerns, rising 21 basis points to 249 bp.

Investors in European and US credit markets accelerated their flight from risk on Wednesday as the turmoil from the US mortgage markets continued to spill over into other asset classes.

article at http://www.ft.com/cms/s/c341c57e-2fd6-11dc...00779fd2ac.html

SB

[OnlyMe]

strbear

Would love to know what is happening in the European MBS market.

[strbear]

Only Me

Its not a lot different to the situation in the US but it has been largely driven by Spain - see below;

At the height of the Spanish housing boom three years ago, Spanish banks accounted for more than 80 per cent of mortgage securitisation in Europe. Investment bankers say there are no longer buyers for this kind of paper.

“The market has become very tough even for top quality issuers,” says an investment banker. “Perception of country risk has deteriorated because of the real estate bubble. Investors don’t know whether this is the beginning of a change in economic cycle, or whether we are witnessing a readjustment in asset prices. Either way, it is a very difficult moment, because lenders don’t know what price to put on Spanish corporate debt.”

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Thats from 3 days ago. So all the while Spain is looking doubtful (and the press is full of concern about the RE market) and the US has its sub-prime woes the European indices will be all over the place until it unravels.

SB