There is said to be three groups of traders (hedge funds) involved in this market. First, those macro funds that have a view on the credit market and that covered their position end of February. Second, a group of hedge funds that tries to profit from the volatility recently appearing in this market and trades different credit qualities against each other (trying to be market neutral). Last, there is a specific group of recently created funds that were created specifically for the opportunity offered by this market and believe in further drops in this market.
Those funds short the market in early February (and those leaping into the trade) were the top performers in February with returns well above 90 %. Some of this hedge fund believed in further corrections and some of the February gains were given away as March and April saw the ABX index trending upwards almost 10 %. This upward trend was due to the market believe that mortgage companies and state and federal regulators would bring up solutions to reduce foreclosures. Those that started the February month short the bonds suffered heavy casualties. The best well known losses were at Dillon Read Capital Management, the UBS-owned hedge fund which partially disappeared after the big sub prime losses.

The perceived risk of low-rated sub prime mortgage bonds rose yesterday after reports pointed out a higher number of delayed payments from sub-prime borrowers and accelerating rate of price declines in real states. The ABX index (more precisely the rated BBBB issued in June 2006) fell about 3.1 percent. Some expect a larger fall and going back to the title, it might mean a once-in-a-lifetime trade