This month Barclays Capital analysts are launching a new monthly publication called New Resi Synthetic Monitor. This offers a detailed examination of the valuation and collateral performance of the various ABX and PrimeX indices.
Through the new research, Barclays analysts will publish a monthly report tracking synthetic index performance measures and expected valuations.
Barclays analysts said that for this month, overall, their views on the indices remain mostly the same.
They added that the ABX 07-1 PAAAs are still the most attractive on the ABX front. They also find value relative to both the 07-2 and 06-2 indices.
The PAAA versus ‘AAA’ swap, according to analysts, is currently undervalued in the 07-1 index by about four points, considering a 14 point fair value versus 10 points right now.
But, overall, they find that the indices are trading richer compared with cash bonds in unleveraged yield terms. This is a result of the implied leverage in the structure and the fact that the cash bond yield depends on Libor realizations.
Analysts also said that the primeX.FRM1 still offers value, since they do not think that the recent rise in prepayments will continue much longer.
Because of this, at current price levels, they find that the indices trade at high 20% to 30% leveraged yields. This is even assuming more conservative margin requirements compared with those offered in the market — Long PrimeX.FRM1.
They added that unleveraged yields for the PrimeX.FRM1 index are still firmly in the 5% range.
