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have CDO sales stopped?

snigletsniglet
edited June 2007 in Housing Bubble
Does anyone know if the CDO market has been functioning at all in the last week? The news about the Bear Stearns problems make it sound as if no CDOs are being traded at all right now since everyone is scared to see what the real market prices are.

But that wouldn't make sense. If CDOs weren't trading at all, that would mean that much of the structured finance industry would have ground to a halt (i.e. because CDOs are required to grease the wheels of many deals), but I haven't heard any stories about such a general lending collapse.

Or maybe it's only that some classes of CDOs aren't trading but others are?

Comments

  • JazenJazen
    I think it's a huge nobody knows issue, due to lack of transparency.
  • snigletsniglet
    Jazen wrote:
    I think it's a huge nobody knows issue, due to lack of transparency.

    I have to believe that some people know at least a little about the over-all state of the CDO market. At the very least the typical customers of new CDO issues would know if anyone has been approaching them hawking new CDO tranches in the last couple weeks. If I was a big hedge fund CDO purchaser and realized that no one had been trying to sell me new products in the last week, I would be going short everything I could in the markets. But if this were true then word would have leaked out somehow.
  • TJ_98370TJ_98370
    I Googled "CDO sales" and this was one of the hits:

    Planned CDO Sales Dry Up Amid Bailout, JPMorgan Says (Update1)

    June 26 (Bloomberg) -- Planned sales of collateralized debt obligations backed mainly by subprime mortgages are drying up and may shut down amid concerns about the integrity of the market following the near collapse of hedge funds run by Bear Stearns Cos., JPMorgan Chase & Co. said.

    The amount of U.S. high-grade, structured finance CDOs that are being offered to investors has plunged to $3 billion, from $20 billion a month ago, JPMorgan said in a report dated yesterday....
    ...
  • deejayohdeejayoh
    to put that in context from the same article:
    Not Dead Yet

    High-grade structured finance CDOs include asset-backed securities of home mortgages that have high credit ratings such as AAA by Fitch Ratings or Standard & Poor's. Through June 22, issuance this year has risen 23 percent to $66.6 billion from the same period in 2006. That's second only to issuance of CDOs that contain corporate loans, of which $114 billion was sold.

    According to the article, CDO's are a trillion dollar per year market, and the article headline focuses on the $20B/month segment - which is roughly 25% of the total.

    Seems to me you have two effects in play here:
    1) Dramatic decrease in writing of subprime loans. The front of the pipe has dried up, so less CDO's would be issued in any case.
    2) nervousness about buying low rated CDOs.

    I suspect the cause of the drop in the article is more #1 than #2. Publicity about the mess started in March. 82 broker/lenders went out of business. It makes sense that the amount of business that has to be underwritten should have dropped precipitously. Impact of #2 is still to come - and I think it will be felt more by the LBOs in the pipe than in housing
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