Funds Swap Into Subprime Short Plays

"It depends on how bad the subprime collapse is going to be going forward," says a Wall Street credit analyst, whose firm prevents him from being quoted in the media.

The major wild card for the subprime market is home price appreciation -- which stood at 5.2% last year, down from double-digit annual growth from 2003 to 2005. If home price growth goes to zero or turns negative, "then things will be very bad for subprime," and the ABX index could fall hard, the analyst notes.

If home price appreciation stays in the low single digits, then the subprime bonds may remain stable at current levels.

The other variable for the market is employment. On Friday, the government will release the latest jobs data for February.

A poor jobs report, coupled with any further discounting of homes by homebuilders such as Lennar(LEN Quote) during the spring selling season, will only put more pressure on subprime borrowers, and shorting the ABX index could remain a profitable trade.