After a brutal market downturn of almost unprecedented proportions, the rate of credit deterioration finally slowed in February.
However, analysts still warn that the silver lining is likely owed more to the calendar than to any true sign of improvement in the market.
Barclays Capital analysts reported a decrease in 30-day and 60-day delinquencies in most of the trusts across all the indices. Only 18% of bonds showed higher 30-day delinquency buckets, while roughly 36% had higher 60-day, according to the research.
Barclays, however, maintained that the slide in early stage delinquencies was mostly due to seasonality, among other factors. The firm noted that current to 30 roll rates have dropped from January to February in every year since 2000.
Barclays further estimated that "seasonality alone" would decrease the 30- and 60-day delinquency buckets by 7% to 8% each month-over-month. After adjusting for seasonality, aggregate 30- and 60-day buckets actually show 0.4% and 2.3% month-over-month increases, respectively, according to the research.
"A less optimistic picture than the 7% and 5% m/m decrease in non-seasonally adjusted delinquencies," the analysts wrote.
But researchers for Lehman Brothers, who also owed the decline in deterioration to historical seasonality trends, reported that the credit performance was nonetheless much better than expected. Historical trends, the researchers noted, pointed to a 10% dip in the pace of month-over-month increases in delinquencies, but the slowdown was actually 15% to 30% across the ABX indices.
JPMorgan Securities researchers perhaps summed up the March remittances best: "While the data is encouraging," they wrote, "one swallow doesn't make a summer, and a single month's data is not enough to identify a trend."
According to data from UBS the 30-day DQ category went down by 55 basis points for the ABX 06-1, by 37 basis points for the ABX 06-2, by 41 basis points for the ABX 07-1 and by 40 basis points for the ABX 07-2. But because the REO+FC bucket continues to increase, the overall 60+ day DQ category, including REO, FC and BK, increased across all four indices -161 basis points for ABX 06-1, 219 basis points for ABX 06-2, 136 basis points for ABX 07-1 and 198 basis points for ABX 07-2.
JPMorgan researchers reported that only three deals - two from 06-1 and one from 06-2 - experienced write-downs. Only the junior most tranches have been hit.
Barclays reported that bankruptcy, foreclosure and REO readings increased across all index series, which offsets some of the improvement in 60-day delinquencies. The highest month-over-month percentage gains for foreclosures and REO were from Series 06-1 and 07-1 and Series 07-1 and 07-2 respectively, according to Barclays.
Prepayment speeds also continued to slow, with the 06-2 index showing lower reset prepayment speeds than the 06-1 index, according to Merrill Lynch. The 06-2 deals show 24% CPR, which is about 46% slower than the 27 WALA for 06-1, the strategist's wrote.
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