Tranches of trepidation

Correlation

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Stress in the US housing and mortgage sector is causing concern among some participants in the US tranched credit derivatives market. Painful memories of the 2005 correlation crisis, when idiosyncratic risk in the form of downgrades and spread widening among auto sector credits caused huge mark-to-market losses, have been reawakened.

This time around, credit default swaps (CDSs) referencing the debt of four US homebuilders (Dallas-based Centex, Miami-based Lenmar, Michigan-based Pulte Homes a

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