Prime tranches on the ABX are set to fall further over the next few days. Current lows are thought to be on the back of some particularly grim remittance data - not yet public - detailing losses, delinquencies et cetera.
The market was awash with talk of a large ABS hedge fund liquidation yesterday, as reported on Markets Live. And indeed the most recent dip in the index is what broke high profile hedge fund Peloton on Thursday.
The fund had just built up a large position in AAA rated mortgage securities - exactly the kind of ABS the ABX tracks. As the price fell, the cost of Peloton’s arbitrage rose and brokers made margin calls.
The Peloton letter to investors is available on FT Alphaville here.
With Peloton’s $9bn of assets being hawked by brokers, traders are gritting their teeth for another sharp downtick on the ABX.
