Derivatives Breaking With Bonds as PrimeX Falls: Credit Markets
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Mortgage derivatives tied to the biggest U.S. home loans are plummeting in a divergence from the underlying bonds as firms from TCW Group Inc. to Wells Fargo & Co. say the credit-default swaps are sending false signals.
PrimeX indexes, used to wager on higher-quality mortgages from before the housing crash that were too large for government backing, reached record lows this month as trading quadrupled. One index tied to fixed-rate debt fell 10.6 percent through yesterday, while the underlying bonds declined less than 1 percent, Markit Group Ltd. and JPMorgan Chase & Co. data show.