Wednesday, July 25, 2007

CNNMoney: Subprime woes hit junk bonds

This article yesterday from CNN confirms an earlier post (July 16, 2007) I found regarding the two prong approach of identifying the losses from the subprime market (and recasting those losses to junk status) and its affects on the market..

NEW YORK ( -- Woes plaguing the subprime mortgage market are spreading to junk bonds, according Bill Gross, manager of the world's largest bond fund.

Credit markets are facing a "sudden liquidity crisis" in the high-yield bond sector as a growing lack of confidence has frozen future lending, the PIMCO bond manager wrote in an August investment newsletter posted on the PIMCO Web site.'s Allen Wastler looks at adjustable rate mortgages resetting from their low teaser rates.
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"Both borrowers and lenders may have bitten off more than they can chew, and even those that swallow their hot dogs whole -- Nathan's Famous Coney Island style -- are having a serious bout of indigestion," he wrote.

The subprime mortgage market, in which loans are granted to high risk borrowers despite little or poor credit, has been battered by rising default rates and delinquencies.

U.S. mortgage lenders, including bankrupt New Century Financial, as well as Countrywide Financial (down $3.92 to $30.14, Charts, Fortune 500), which slashed its full-year earnings estimates Tuesday, have been stung by massive losses. Two Bear Stearns (down $2.86 to $131.39, Charts, Fortune 500) hedge funds were also virtually wiped out.

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