The graph shows the price of a CDO index rated AAA. full info is here.
I have been a bear for 5 years on real estate and been wrong for 5 years. The graph shows some of the prices for CDO's which are bundled securities. this particular index has securities from Morgan Stanley, Merill Lynch and other big houses in it. The scary thing is that this shows a market trying to price in anticipated default risk at the quality end of the market. Any PHD doing VaR modelling or other standard stochastic modeling wouldn't really have seen this coming, especially in the "high grade paper". This market will most likely get over sold in the near future as sellers start dumping paper to cover margin calls and get their risk capital positions back in place. In the mean time spreads will widen in this space. So far this is a Wall Street event, but it may be a predictor of a main street event in the next 9-12 months when many ARM's reset and the reality of negative equity sets in.
