After last week shaky sessions that closed the second quarter I was wondering how the new quarter will start. It started badly.

How come you may ask? The Dow Jones was up 126 points! So what? All indexes (except Nasdaq) are trading within trend-lines and I see nothing special. However, the credit markets behaved poorly, hinting at more cockroaches coming. Let review what happened:

  • ABX.HE CDS index – panic. The index of mortgage bond protection crashed today to record low levels. Especially important is a bad crash in investment-grade ABX-HE-AA 07-1
  • CMBX.NA index – panic. The commercial real estate protection is crashing, especially important is a crash in CMBX-NA-AA 3
  • LCDX index – crashing. The sell-off is not so bad as in real estate indexes, but the protection behind LBO deals is getting costly
  • CDX index – falling. This is a protection index for baskets of corporate bonds
  • High yield bonds – drifting down by another 7bp, or 70bp above May spread
  • Dollar is falling, Yen rising

The name for what is happening is credit crunch. Expect no good