Sub-prime plot thickens

“U.S. Treasury prices fell Thursday as subprime concerns plagued the bond market. A Blackstone Group-led proposal to restructure and re-capitalize the Bear Stearns High-Grade Structured Credit Enhanced Leverage Fund, and a sister fund, unraveled with Merrill Lynch’s refusal to accept the private bailout. As a result, Merrill seized $850 mln of collateralized debt obligations (CDOs) held as collateral and put them up for auction on the street, accepting bids until 4:00 pm New York time. JPMorgan cancelled its plan to sell about $400 mln worth of bonds. The pressure on Treasuries appeared to be related to hedging of some those exposures. Aside from Merrill and JPMorgan, Citigroup, Bank of America, Credit Suisse, Goldman Sachs and Lehman Brothers were all lenders to the hedge fund. However, the problems are feared to go deeper than Wall Street, as the auction will likely trigger a mark-down in asset valuations due to the fire-sale conditions. Hedge funds and pension funds are cited to be among the biggest holders of CDOs, with the Wall Street Journal estimating about $1.8 trillion worth of securities backed by subprime mortgages having been minted since 2000.”  TDIS Bond Buzz

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