As evidenced by the growing CDS of CDO market, investors are becoming increasingly bearish on not only subprime mortgages issued in 2005 and 2006, but also on the CDOs that are buying the bonds backed by them. While rating agency sources say the first downgrades to these CDOs shouldn't be expected for several years, investors are expected to begin asking for more risk compensation before they buy the lower rated notes.
Twenty-seven CDOs totaling $15 billion priced in the week leading up to Information Management Network's ABS East conference. Triple-B mezzanine SF CDO spreads for the four such deals that priced widened by an average 15 basis points, pricing at 340 basis points over Libor, according to JPMorgan Securities. Triple-B SF CDO tranches, on average, widened five basis points in the month of October, closing at 335 basis points over Libor, while double-B tranches gapped out by 10 basis points, according to Deutsche Bank. Both are at 52-week wides.