Its one thing when we see that the BBB- bonds — the junkiest sub-prime crap in the Residential Mortgage Backed Securities (RMBS) universe — getting shellacked due to foreclosures.
But today, we see that the AA and even the AAA are getting whacked. It looks like either a fund is getting liquidated across all asset qualities — or someone is panicking.
UPDATE: July 16, 2007 7:28pm
On the train home, I bump into a friend from UBS, who reminds me that triple AAAs contains up to 8% toxic sludge, while the double AAs contain up to 12%.
As we mentioned this morning in the Beyond the ‘Wall of Worry,’ perhaps the focus has been in the wrong place — not the low quality junk, but the supposed AAA stuff . . .
Very ominous charts (all via Markit):
Maybe there is a problem at Bear Stearns.
Regardless, looks like another hardly efficient market . . .