Post by unlawflcombatnt on Mar 10, 2007 4:30:02 GMT -6
Below is a link and excerpt from Bloomberg article Subprime Mortgage Bonds Extend Drop as Dealers Cut CDO Funding by Jody Shenn
"March 9 (Bloomberg) -- Subprime mortgage bonds are falling in part because Wall Street dealers are lending less money to managers of collateralized debt obligations that buy the securities, according to investors....
The drop in demand caused yields on subprime mortgage bonds with the lowest investment-grade ratings to double to 8 percentage points over benchmark rates last month, according to New York-based Lehman Brothers Holdings Inc. The rates consumers with bad credit pay on home loans fluctuate with the yield that bond investors demand to own securities backed by the mortgages.
CDOs repackage loans, bonds and derivatives as new securities. Strategists at firms including JPMorgan Chase & Co. say spreads on mortgage CDOs will widen further. That suggests subprime bonds held in ``warehouses'' waiting to become part of a CDO won't be able to be repackaged at a profit. Subprime loans are made to homebuyers with poor or limited credit histories.
Securities firms often either share or take all of the risk of CDO securities not being sold for enough to create a profit, or of bonds expected to be put into a CDO needing to be sold at loss instead, taking interest payments in the interim in return....
About $173 billion of CDOs backed mainly by U.S. subprime mortgage bonds and related derivatives were created last year, according to JPMorgan...."
The rest of the article can be found at: Subprime Mortgage Bonds Extend Drop as Dealers Cut CDO Funding
"March 9 (Bloomberg) -- Subprime mortgage bonds are falling in part because Wall Street dealers are lending less money to managers of collateralized debt obligations that buy the securities, according to investors....
The drop in demand caused yields on subprime mortgage bonds with the lowest investment-grade ratings to double to 8 percentage points over benchmark rates last month, according to New York-based Lehman Brothers Holdings Inc. The rates consumers with bad credit pay on home loans fluctuate with the yield that bond investors demand to own securities backed by the mortgages.
CDOs repackage loans, bonds and derivatives as new securities. Strategists at firms including JPMorgan Chase & Co. say spreads on mortgage CDOs will widen further. That suggests subprime bonds held in ``warehouses'' waiting to become part of a CDO won't be able to be repackaged at a profit. Subprime loans are made to homebuyers with poor or limited credit histories.
Securities firms often either share or take all of the risk of CDO securities not being sold for enough to create a profit, or of bonds expected to be put into a CDO needing to be sold at loss instead, taking interest payments in the interim in return....
About $173 billion of CDOs backed mainly by U.S. subprime mortgage bonds and related derivatives were created last year, according to JPMorgan...."
The rest of the article can be found at: Subprime Mortgage Bonds Extend Drop as Dealers Cut CDO Funding