HOUSING DERIVATIVES

Housing Futures & Derivatives - S&P/Case-Shiller August 2007 Index Release

Below are the August index values for the S&P/Case-Shiller Index.  The top table lists the CME housing futures cities.

	S&P/Case-Shiller Index - August 2007
CME	Aug 06	Jul 07	Aug 07	Jul07 v Aug07	Jul07 v Aug07	Aug06 v Aug07
Bos	177.28	171.79	170.86	(0.93)	-0.54%	-3.6%	Bos
Chi	167.99	166.13	165.77	(0.36)	-0.22%	-1.3%	Chi
Den	140.27	139.23	139.70	0.47	0.34%	-0.4%	Den
LV	234.78	219.91	216.83	(3.08)	-1.40%	-7.6%	LV
LA	273.80	260.84	258.07	(2.77)	-1.06%	-5.7%	LA
Mia	276.80	260.39	255.29	(5.10)	-1.96%	-7.8%	Mia
NY	214.34	207.91	206.20	(1.71)	-0.82%	-3.8%	NY
SD	247.30	229.67	226.73	(2.94)	-1.28%	-8.3%	SD
SF	217.22	208.64	208.15	(0.49)	-0.23%	-4.2%	SF
WDC	247.94	231.87	230.02	(1.85)	-0.80%	-7.2%	WDC
10-C	225.54	216.17	214.35	(1.82)	-0.84%	-5.0%	10-C
	Aug 06	Jul 07	Aug 07	Jul07 v Aug07	Jul07 v Aug07	Aug06 v Aug07
Atl	135.27	136.47	136.41	(0.06)	-0.04%	0.8%	Atl
Char	128.72	135.60	135.88	0.28	0.21%	5.6%	Char
Clev	123.39	118.66	118.36	(0.30)	-0.25%	-4.1%	Clev
Dal	125.71	126.32	126.32	0.00	0.00%	0.5%	Dal
Det	123.00	111.85	111.58	(0.27)	-0.24%	-9.3%	Det
Min	170.97	164.86	164.18	(0.68)	-0.41%	-4.0%	Min
Pho	227.01	210.78	208.86	(1.92)	-0.91%	-8.0%	Pho
Port	181.02	186.51	186.00	(0.51)	-0.27%	2.8%	Port
Sea	181.84	192.30	192.14	(0.16)	-0.08%	5.7%	Sea
Tamp	236.82	217.22	212.92	(4.30)	-1.98%	-10.1%	Tamp
20-C	206.18	198.44	197.16	(1.28)	-0.65%	-4.4%	20-C

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Derivatives - ABX Mortgage Derivatives Are One Way Down

The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages.  ABX contracts are commonly used by investors to speculate on or to hedge against the risk that the underling mortgage securities are not repaid as expected.  The ABX swaps offer protection if the securities are not repaid as expected, in return for regular insurance-like premiums.  A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments.  Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.

This week, all the tranches of the 06-2, 07-1 and 07-2 series set lifetime lows. The BBB and BBB- tranches are in the teens. It is unsympathetic one way pricing. These types of derivatives do not lie about investor sentiment. Source: Markit. 

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Derivatives - ABX Subprime Mortgage Index 07-1 Series Making Steepest Decline

The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages.  ABX contracts are commonly used by investors to speculate on or to hedge against the risk that the underling mortgage securities are not repaid as expected.  The ABX swaps offer protection if the securities are not repaid as expected, in return for regular insurance-like premiums.  A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments.  Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.

So far this week, the 07-1 series is settling its trading on its lifetime lows for all but the AAA tranche. The BBB and BBB- tranches are about to break the 20% level.  The 07-1 tranche cover 20 subprime mortgage bonds issued in the second half of 2006, coinciding with the high in the national real estate market.  Source: Markit. 

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Derivatives - No Relief For ABX Values

The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages. A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments.  Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.

This week, all of the A, BBB and BBB- tranches for the 06-02, 07-1 and 07-2 series settled on their lifetime lows. The AA tranche of the 07-2 series settled on its life-of-contract lows.  Source: Markit. 

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Derivatives - ABX and ABS Issuance

The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages.  ABX contracts are commonly used by investors to speculate on or to hedge against the risk that the underling mortgage securities are not repaid as expected.  The ABX swaps offer protection if the securities are not repaid as expected, in return for regular insurance-like premiums.  A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments.  Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.

Financial News Online US reports that ABS issuance is low and may lead to index changes:

The four ABX derivative indices, which track the cost or spread of credit derivatives on 20 bonds secured by sub-prime mortgages and home-equity loans, are struggling to replace maturing bonds with newly qualified issues because supply has been severely hit by the sub-prime mortgage crisis in the US.

New versions of the indices are created every six months as some of the securities mature and fall out of the index, leaving room for newly issued asset-backed securities to qualify. However, the dearth of new supply in the past three months and poor outlook to the end of the year may lead the indexes being changed.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Derivatives - ABX BBB- Tranches Making New Lows

The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages. A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments.  Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.

This week, all of the BBB- tranches settled on lifetime lows. Three of the four BBB tranches settled on life-of-contract lows. As quoted before, these tranches appear to be in a race to zero or to some salvage-like value that is essentially zero. The 07-1 series appears to be the weakest of the bunch, with the BBB- at 28%. Source: Markit.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Derivatives - Radar Logic HPA Swaps

Housing derivatives using Radar Logic RPX data for settlement have been trading the last few weeks. These contracts are total return swaps that are quoted on annualized HPA terms (go to Radar Logic site for swap structure). The investment banking community has been supporting these contracts with market-making in the 25 City Composite and various single city MSAs. The national discussion on housing prices and their direction can now be viewed with capital market support. The housing price periscope into the future is no longer a forecasting kaleidescope.

Of note is that there have been various trades that extend for five years. This capability gives investors in the housing asset space the ability to take views on housing for five years. These contracts are the first of their kind in that annual housing price appreciation can be traded. An investor take a view on HPA levels with quarterly settlements based upon actual price changes.

These trades are ISDA-based and bilaterally cleared with a licensed Radar Logic dealer.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Futures & Derivatives - ABX BBB- Tranches Set New Lows

The ABX Index is a series of credit-default swaps based on 20 bonds that consist of subprime mortgages. A decline in the ABX Index signifies investor sentiment that subprime mortgage holders will suffer increased financial losses from those investments.  Likewise, an increase in the ABX Index signifies investor sentiment looking for subprime mortgage holdings to perform better as investments.

Today, three of the four BBB- tranches, the lowest (and financially riskiest) tranches, made lifetime lows.  The BBB- 07-1 settled at 29.21%.  Source: Markit.

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

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Housing Futures & Derivatives - The Housing Futures Curve

TFS Derivatives Corp. produces the TFS Housing Metrics report weekly.  Attached here is this week's report highlighting the forward curves for the CME housing cities. Download 1022007_tfs_housing_metrics.pdf

All opinions expressed herein are those of the author, and no statement should be as an offer to buy or sell any futures contract, or security or option or other derivative instrument. Trading of all such futures, securities, options and other derivative instruments entails significant risk which can result in substantial financial loss. Such risks should be fully understood prior to trading.  Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.

housing derivatives housing futures hedging case-shiller index radar logic rpx futures forward cme