Subprime credit default swap price increases slowed during February, a trend that could mean a "near-term plateau," according to a new report from Fitch Inc.
The rating agency's U.S. subprime CDS index jumped 90 basis points during the month to 11.46. The most dramatic change during February was a large decrease in the constant payment rate across all vintages.
Fitch director David Austerweill said in an e-mail response to a question from this publication that this and other decreases in the constant payment rate over the past four months have been "very integral to the rise in prices over the same period."
The report indicates increased loss severities were the only negative development to mar last month's performance data and mark the continuation of a problematic trend seen over the past year.
"Severely delinquent loans are taking longer to liquidate and the cost of repaying [principal and interest] to the servicer is increasing with time. As a result, cash flows available to the subprime bond holder at liquidation are being depleted," he said.
While rising loss severities are having an impact on subprime credits, a recent Barclays report indicates that these look relatively stable compared to those seen in option ARM and alternative-A credits.
