Jump to content
House Price Crash Forum
Sign in to follow this  
Realistbear

U.s. Subprime Woes To Test European Credit Nerves

Recommended Posts

http://investing.reuters.co.uk/news/articl...KETS-CREDIT.XML

U.S. subprime woes to test European credit nerves
Thu Jun 21, 2007 1:59 PM BST19
By Natalie Harrison
LONDON, June 21 (Reuters) -
A spike in European credit spreads may be the start of a deep and long-lasting correction
, or just another blip as fears about the U.S. subprime market and higher rates unnerve investors.
U.S. sub-prime mortgage sector woes have resurfaced after several Wall street banks unwound positions in two Bear Stearns (BSC.N: Quote, Profile , Research) hedge funds that were heavily invested in the riskiest U.S. home loans.
That has added to recent worries about rising interest rates, after the yield on 10-year benchmark U.S. Treasuries <US10YT=RR> shot up to five-year highs around 5.30 percent earlier this month.

A lot of factors out there make continued holding of anything remotely connected to bubble assets bad news.

Share this post


Link to post
Share on other sites
"It definitely looks like the start of something more worrying to come," said Mehernosh Engineer, senior credit strategist at BNP Paribas. "This is just the beginning."
One of the big unknowns is how much mispricing has been going on within subprime CDOs, he said.
Credit derivatives such as collateralised debt obligations (CDOs) disperse default risk throughout the investment community, enabling lenders last year to loosen lending standards on the riskiest U.S. home loans.
With many of those mortgages now defaulting, investors with the biggest exposures are getting hit, and the worry among investors is that the highly opaque and leveraged CDO market has never been tested in a serious downturn.
"The big catalyst for us will be when the rating agencies actually wake up and start downgrading some of these subprime CDOs," Engineer said, with the main uncertainty one of timing. "That will significantly impact the entire subprime AAA/AA CDO universe to a big extent."

This is my favourite part of the Reuters article. Once the CDOs are downgraded, their value will plummet and it'll be much more difficult to shift new ones in the future. Hey presto: CREDIT CRUNCH!

Share this post


Link to post
Share on other sites
One of the big unknowns is how much mispricing has been going on within subprime CDOs, he said.

What is the correct market value for a mortgage lent to someone who can't afford to pay it back?

Edited by MarkG

Share this post


Link to post
Share on other sites
"It definitely looks like the start of something more worrying to come," said Mehernosh Engineer, senior credit strategist at BNP Paribas. "This is just the beginning."
One of the big unknowns is how much mispricing has been going on within subprime CDOs, he said.
Credit derivatives such as collateralised debt obligations (CDOs) disperse default risk throughout the investment community, enabling lenders last year to loosen lending standards on the riskiest U.S. home loans.
With many of those mortgages now defaulting, investors with the biggest exposures are getting hit, and the worry among investors is that the highly opaque and leveraged CDO market has never been tested in a serious downturn.
"The big catalyst for us will be when the rating agencies actually wake up and start downgrading some of these subprime CDOs," Engineer said, with the main uncertainty one of timing. "That will significantly impact the entire subprime AAA/AA CDO universe to a big extent."

This is my favourite part of the Reuters article. Once the CDOs are downgraded, their value will plummet and it'll be much more difficult to shift new ones in the future. Hey presto: CREDIT CRUNCH!

"disperse default risk" i.e. spread the cr*p around !

Unknown - aren't these hugely paid whizz kids supposed to factor this in? How does subprime become AAA ? Alchemy ?

Share this post


Link to post
Share on other sites
"It definitely looks like the start of something more worrying to come," said Mehernosh Engineer, senior credit strategist at BNP Paribas. "This is just the beginning."
One of the big unknowns is how much mispricing has been going on within subprime CDOs, he said.
Credit derivatives such as collateralised debt obligations (CDOs) disperse default risk throughout the investment community, enabling lenders last year to loosen lending standards on the riskiest U.S. home loans.
With many of those mortgages now defaulting, investors with the biggest exposures are getting hit, and the worry among investors is that the highly opaque and leveraged CDO market has never been tested in a serious downturn.
"The big catalyst for us will be when the rating agencies actually wake up and start downgrading some of these subprime CDOs," Engineer said, with the main uncertainty one of timing. "That will significantly impact the entire subprime AAA/AA CDO universe to a big extent."

This is my favourite part of the Reuters article. Once the CDOs are downgraded, their value will plummet and it'll be much more difficult to shift new ones in the future. Hey presto: CREDIT CRUNCH!

Keep in mind the biggy in this one (and probably why they've not done anything about it yet).

Pension funds hold quite a lot of these. But when they're downgraded they legally won't be able to hold them anymore...if it does happen it isn't going to be pretty as they head for the exits quicker than the lawyers can sharpen their pens. :lol:

Share this post


Link to post
Share on other sites
Keep in mind the biggy in this one (and probably why they've not done anything about it yet).

Pension funds hold quite a lot of these. But when they're downgraded they legally won't be able to hold them anymore...if it does happen it isn't going to be pretty as they head for the exits quicker than the lawyers can sharpen their pens. :lol:

This will get very interesting, having read the recent articles about current pension funds getting into surplus this is going to knock them for six. It is amazing the writing has been on the wall for quite a while now but they will all rush for the exit at the same time

Bear Stearns Fund Collapse Sends Shock Through CDOs

http://www.bloomberg.com/apps/news?pid=206...&refer=home

The DOW was nearly 100 points down and after yesterday slip was looking interesting, but made an impressive and rapid recovery, funny old world when this sort of news leads to positive territory on the DOW.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 354 The Prime Minister stated that there were three Brexit options available to the UK:

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.