I'm really getting bored with cats.

I'm not a believe in the ABX indices as an efficient predictor of the broader market. Notice that the corresponding AAA tranches of the same aggregated portfolio you graph above have continued to go down. That can't fit with the idea that both indices are an efficient predictor of loss because the way the subordination works, the BBB tranche loses everything before the AAA tranche experiences its first dollar of loss.

My view is that the AAA tranche is probably way too low and relative to its underlying fundamentals/subordination, and I suspect the price action is being driven by people who need to sell in order to control risk or improve capital ratios; the BBB tranche is really tough to put a value on because it is an aggregate of a bunch of bets that don't pay off unless loss is over percent X1 but lose everything if loss is over percent X2.

I should have said above that the behavior of BBB stable at 20 cents on the dollar while the AAA still goes down is possible only if the AAA price action is driven by index components where the BBB already went to zero.

Actually the BBB tranche can reach "interest only" prices and stay there, whereas the AAA can keep falling due to principal impairment. In other words, at some price, the BBB tranche reflects receipt of no principal, but some amount of interest. At the same time, more senior tranche prices may reflect some amount of principal. As losses mount, senior tranche prices can therefore fall while junior tranches are unchanged.

That's what burned Morgan Stanley, BTW.