2) a look at the structure of CDOs and the ABX index including the role of falling house prices in the run up to the turmoil;
In response to demand for a tradable instrument that represents the market for subprime CDOs more generally, the ABX index was created.
The ABX index is a readily available measure of the value of CDOs from the vendor Markit.
At initiation, the ABX index is an equally-weighted index based on twenty deals in the prior six months.
The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages.
Youngblood cites as an example the second-quarter 2007 BBB-minus-class ABX index, which was trading at a yield that was 6,667 basis points over one-month London interbank rate (LIBOR) in mid-November.
1, second-quarter 2007 ABX index for AAA tranches of mortgage-backed securities stood at 95.61 (par = 100), while AA was at 88.38.
Respondents were evenly split on whether the much used ABX index
that tracks valuations of mortgage backed securities is a reliable (37%) or unreliable (34%) indicator of current market value.
That indicator is the ABX Index, which is a series of credit-default swaps based on 20 bonds backed by subprime mortgages (see sidebar, "Snapshots of RMBS Summer 2007 Decline and Partial Rebound").
Currently there are four broad ABX indexes representing bonds from 80 different credit-market dealers, according to a June report by Felix Salmon in Conde Nast Inc.'s Portfolio.com.
mortgage companies, the subprime ABX indexes, already low, sank further.
The chart below is an index of the weighted average price from the various ABX indexes
based on those calculated percentages.