The two-month-old synthetic index for home equity ABS is arguably becoming less volatile and more transparent as an increasing number of investors move into the sector and a wider array of data becomes available in order to track pricing patterns, according to market participants. Furthermore, investor expectations of a softer landing for the housing market is expected to ease widespread credit concerns in the near-term, according to JPMorgan Securities.

Meanwhile, tiering within the single-name home equity ABS credit default swap market has become more pronounced, a trend that is exacerbated as hedge funds look to sell protection on the lowest-rated tranches in the capital structure and as CDO managers sell protection on the highest rated pieces, according to traders at Deutsche Bank. This is a situation that has left dealers with an unattractive basis trade on their books and has resulted in more CDO managers have turning their attention to cash new issue deals or to the index, they added.

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