If traders learned one major lesson from the market crises of 1998, it was that hedging asset-backed and mortgage-backed securities required hedging out spread risk - forcing players to pay special attention to the swap market, the ultimate harbinger of which direction spreads are going.

The reverberations of that lesson are still being felt today, especially in the commercial mortgage-backed sector -which is now 90% correlated to the swap market, particularly over the last year and a half - and the asset-backed market, which is only now beginning to adjust to this new pricing paradigm.

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