As RBS Greenwich Capital analysts put it last week, "it has been a while since we last saw it, and new investors in the sector may not recognize it. Volatility has returned to HEL credit." The volatility is a result of pricing fluctuations in the home equity ABS credit default swap market, the cause of which is not entirely clear.

Buckling under the pressure of the tempting wide margin between some of the lowest rated cash and synthetic home equity ABS exposure, it would appear as though CDOs, among others, have finally moved in as protection sellers in the asset class. Although, another possibility for the dislocation seen in the home-equity CDS market in recent weeks could be the result of a rash of hedge funds unwinding short positions.

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