Sunday, March 09, 2008

CDX Cliff Diving

by Bill McBride on 3/09/2008 07:42:00 PM

From the WSJ: Fear Cycle Ensnares Structured Products

... investors ... are driving risk premiums on a closely watched derivative index -- the investment-grade Market CDX IG9 index -- to record weak levels ...

That, in turn, is creating a vicious cycle: the wider the risk premiums go on this index, the more of these complex structured products -- which are at the heart of the ongoing credit crunch -- get dragged into the maelstrom.
CDX IG9 Click on graph for larger image.

Here is the CDX IG9 graph from Market.
The IG9 index reflects the cost of insuring against default by 125 U.S. and Canadian investment-grade companies. It widens when investors buy protection in anticipation of further troubles in corporate credit. Structured products also used the index, primarily selling protection, as part of elaborate money-making strategies.
Just more cliff diving in the credit markets.