Markit Looks to Past for Latest ABX Addition

Markit, the financial information services company that owns the Markit ABX.HE inde — commonly referred to as the ABX, for short — said Wednesday that it plans to launch an ABX.HE 05-2 index on Oct. 2. The ABX.HE is a tradable synthetic index of U.S. sub-prime asset-backed securities. The addition of the new index, following a majority vote of licensed dealers, will provide institutional investors with a greater ability to gain or hedge exposure to an earlier vintage of U.S. RMBS. The newest addition to the ABX indices will reference 20 qualifying RMBS deals issued in the first half of 2005. Existing ABX indices include the 06-1, 06-2, 07-1 and 07-2 series, covering subprime mortgages originated from the second half of 2005 through the first half of 2007. Markit has been unable to roll out any forward indexes (i.e., the 08-1) due to the implosion of the private party mortgage market; there simply aren’t any new mortgages to put into such an index. Sources told HW the move to roll out an 05-2 series came in response to hedge fund and institutional investors, who are planning to hedge and move some older-vintage subprime assets in coming months. “There will be a market for subprime RMBS, a junk bond market if you will, at some point in the future,” said one trader, who asked not to be named. “For now, hedging is a priority, and once trading begins, pricing will be critical as well. This should help older-vintage subprime move when that starts to take place.” Because the subprime market has all but disappeared, a fair amount of mortgage loans remain in pools issued in late 2005, unable to refinance or revintage into newer mortgages. For more information, visit http://www.markit.com.