Monetary Policy Report submitted to the Congress on July 18, 2007, pursuant to section 2B of the Federal Reserve Act
Figure of spreads on BBB minus indexes of credit default swaps on subprime mortgages, 2006-07
Data are plotted as three curves. The spread on the 2007-1 index of credit default swaps starts in January 2007 at 470 basis points. It then widens significantly, reaching a peak of more than 2,000 basis points at the end of February. The spread generally narrows to about 1,400 basis points by mid-May, but then it widens again, reaching a peak of almost 3,000 basis points by mid-July. The spread on the 2006-2 index of credit default swaps starts in July 2006 at 240 basis points. It begins widening in late 2006, reaching a peak of almost 2,000 basis points at the end of February 2007. The spread generally narrows to roughly 1,200 basis points by mid-May, but then it widens again, reaching a peak of more than 2,700 basis points by mid-July. The spread on the 2006-1 index of credit default swaps starts in January 2006 at about 300 basis points. It generally stays below 300 basis points through early 2007, when it starts rising. After reaching a peak of about 1,300 basis points at the end of February, the spread generally narrows to about 600 basis points by mid-May. It then widens again through mid-July, reaching a peak of more than 1,600 basis points.
Note: The data are daily and extend through July 13, 2007; the spreads are relative to libor. The series shown refer to pools of mortgages originated in specific half-years, as follows: Series 2007-1 corresponds to mortgages originated in 2006:H2, series 2006-2 to those originated in 2006:H1, and series 2006-1 to those originated in 2005:H2.
Source: Markit.