The home equity ABS credit default swap index - called the ABX.HE - is expected by analysts to remain volatile, at least in the near term.

Prices on the five indices that comprise the index are expected somewhat to mirror the instability seen in the single-name ABS CDS market during the latter part of 2005, according to Lehman Brothers.

The index, which officially launched on Jan.19, ended its first day with triple-B and triple-B minus spreads gapping out by 25 to 30 basis points, while the triple-A through single-A indices tightened by three to five basis points.

Markit Group Limited, along with 16 investment banks, launched the synthetic ABS index of U.S. home equity ABS, called the ABX.HE. The ABX.HE includes five indices referencing baskets of single-name ABCDS on subprime RMBS reference obligations ranging from triple-A to triple-B minus [see ASR, 1/23/05].

Spreads on the index had, for the most part, settled as of last week to become more in line with single-name pricing. For example, the triple-B minus index landed at around 270 to 290 basis points from as high as 320 to 240 basis points following initial trading, according to Bear Stearns. The triple-B minus spread had started from a 267 basis point fixed-rate.

The increase in the credit curve from the triple-A bucket to the triple-B minus bucket reflects the bearish sentiment in the market regarding the consumer credit and housing sectors. It also reflects the lack of protection selling demand in the lower rating buckets from ABS CDOs, according to Bear.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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