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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (39539)	8/24/2005 7:36:49 AM
From: Condor	Respond to of 110194

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To: ild who wrote (39539)	8/24/2005 8:51:09 AM
From: Ramsey Su	Read Replies (1) \| Respond to of 110194

ild, this is the key to that story. While Asian investors have largely focused on triple-A-rated bonds, other investors are buying lower-rated debt. These bonds, which are created when bankers carve up pools of mortgages, offer higher yields, but also bear the first risk of losses should borrowers default. Investors who buy these bonds in effect set the standards for which mortgages are made by deciding how much extra yield they need to compensate for the added risks of lower-quality loans. They include real-estate investment trusts, hedge funds and investors from Europe. These mortgages have been carved up into so many tranches that the attention should be focused on the junk parts, the parts that are absorbing the majority if not all the default risks. For a point or two more, the buyers of these instruments may be risking 100% or more, if leveraged.