Abridged from ABS Dilemma, by Tom Zimmerman, ABS analyst, PaineWebberAs Treasury market de-linkage becomes more apparent, alternative sectors have become more important as benchmarks. In particular, the swap market grew in importance to the ABS market. Emergence as a key force behind ABS spreads did not develop quickly - it evolved over some years. Several years ago in the ABS market, cards and autos were closely linked to movements in swaps; the mortgage-related sectors (such as home equities) had only a loose linkage. A large movement in swap spreads would eventually impact home equities, but not as fast as it registered in the card or auto sectors.

However during the past two years, the growing awareness that outstanding Treasury supply would be shrinking (and possibly disappear altogether) increased the market's use of swaps for hedging and benchmarking in all parts of the ABS market, including mortgage-related sectors. Swap movements now have a very distinct impact on home equities, even though that particular linkage is still not as immediate as in the card and auto sectors.

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