Here's Markit's AAA 07-1 ABX index (which includes mortgage backed securities (from Markit's website)). Prices were off 10% today, a drop reflected in all of Markit's ABX-AAA indices.
Another example of buy the rumour, sell the news, but this time in the MBS market?
I wonder if this drop will have wider implications, especially given the good correlation between the ABX indices and equities in general -- here's SPX over the time period as the above Markit chart
Or maybe the drop in stocks precipitated the drop in ABX?
UPDATE: John Jansen, over at Across the Curve, came up with a succinct explanation of why the ABX indices sold off yesterday.
January 8th, 2009 10:01 pm
... it appears that a bill to allow bankruptcy judges to alter loan balances has picked up a head of steam as Citibank broke ranks with other lenders and no longer opposes the measure.Dealers report heavy trading in the various ABX tranches today and lots of cash selling. AAAs were down more than three points and some Penultimate tranches dropped over 4 points.
It would appear that the models by which some of this detritus trades does not have a variable for judicial fiat.
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