Risks to short positions exist in CMBX, say Citi analysts

The CMBX index rallied considerably over the last few weeks but what is important, say analysts at Citi in their latest research report, is how quickly the CMBX can tighten in spread terms. It highlights some of the potential risk to short-term positions on the product, which will reduce volatility in the future. They say that there may be some change in what had been a mostly one sided technically driven demand for protection, as market participants become more cautious in considering what the real economics of the underlying indices will be going further. Any short positions that were established in February or March were probably closed at a loss during the recent rally. A CMBX.4 triple A short position would have lost about $1.05 million on a $10 million position, they say. Speculators in the CMBX market may now be less inclined to expect an ABX-like meltdown, they say.
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