Posted on 09/10/2007 10:14:58 AM PDT by Hydroshock
Bond Funds May Be Next to Feel Subprime Shockwaves Topics:Hedge Funds | Credit | Subprime Lending | Treasuries | Mutual FundsBy AP | 09 Sep 2007 | 03:36 PM ET Font size: Could the housing market's woes spread to bonds held in mutual funds by millions of ordinary investors?
AP --------------------------------------------------------------------------------
Some experts -- and hedge fund investors who have made big bets that the mortgage crisis will worsen -- are saying that's exactly what will happen. Some bond funds that invest in riskier short-term debt already have been whacked by soaring default rates on bonds backed by subprime loans made to borrowers with weak credit.
Critics charge that Standard & Poor's, Moody's Investors Service and Fitch Ratings routinely give triple-A ratings -- the safest rating there is -- to far too many mortgage-backed bonds backed by subprime home loans.
"The rating agencies just completely missed the boat in their methodology for rating these things," said Janet Tavakoli, president of Tavakoli Structured Finance, a Chicago consulting firm.
About 80 percent of debt in bonds backed by subprime loans is rated triple-A, the same rating on virtually risk-free U.S. Treasury bonds, experts say.
If that seems shocking, there are bonds backed by delinquent credit card accounts -- one of the riskiest forms of debt -- in which up to 40 percent of the accounts in the security are rated triple-A, says Drexel University finance professor Joseph Mason.
The Securities and Exchange Commission said Friday it had launched a review of what the three agencies' ratings mean and whether conflicts of interest were created if they gave advice to sellers of mortgage debt. Credit rating agencies say their role is to rate the creditworthiness of securities, not advise buyers or sellers of bonds
(Excerpt) Read more at cnbc.com ...
Ping
I hope not, I pulled out of the stock market on Aug-2nd just when the writing was on the wall that the Stock Market was in for a big decline.
I put 80% in bonds & the rest in cash/money markets.
Unless you put that 80% in short term treasuries (which is the same as cash anyway) those funds are at risk.
Actually it is Bond funds, I like to spread the risk and never buy a bond out right.
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