Indices tracking the value of the trillions of dollars of distressed assets that continue to blight bank balance sheets fell sharply this week as a negative spiral of financial distress and subsequent economic pain continued.
After several weeks of stabilisation and even some improvement, there have been renewed falls this week in the value of securities linked to subprime mortgages, leveraged loans and commercial mortgages.
The Markit ABX index for triple A rated securities backed by subprime loans has dropped 13% in the past week. The Markit CMBX index for triple A rated securities backed by commercial mortgages was also down 14.5% in the past week.
The LCDX index, a barometer of leveraged loans, was down 4.6% in the past week, back to levels it traded at about a month ago. The loan index is down more than 20% since just before the bankruptcy of Lehman last September. Many of the assets tracked by these indices are hard to value, and banks’ exposures are far from clear.