I’ve been confused by this same thing: Just to make sure I’ve got it: When the popular press quotes the ABX index, they are quoting the BBB- rated portion of it, correct? If so, that means that the default rates are creeping way past the equity tranche.
With that said, the AAA tranche is still selling for 95 or so, meaning that that’s still quite safe.
I will confess, though…looking at all the different traches, I’m surprised by how much risk the market is pricing in (5 ppts on an AAA rated bond seems like quite a lot).
I haven’t done the math, but it seems like at these prices, and given the ratings downgrades, this market truly is in the process of evaporating, while the spreads skyrocket.
