Tuesday, April 21, 2009

SRS and CRE Bond Spreads

A lot of analysts and traders have been saying that commercial real estate (CRE) is the next shoe to drop (I just wonder how many more shoes are left to drop). News is bad and getting worse.

So you would think SRS, an ETF that seeks investment results which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Real Estate index, would be flying high. The graph, above left, is SRS performance since last October. The huge 2 spikes in October and November correspond to the market swoons that took place. But notice, ever since then, it's been mostly a sell-off on an increasing volume.

The graph, above right, is CMBX index since last October. The index tracks the spread of BBB tranches of CRE bonds (CDO, MBS). Despite all the bad news you hear, the spread has been narrowing.

SRS seemed like such a bargain when it dropped from $240 to $60 and I almost bought it. Glad I didn't. However misplaced this seeming optimism shown in narrowing CRE spreads may be, fighting the trend with SRS looks like a losing proposition for now.

No comments:

Post a Comment