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You’ve got to be a rosy credit analyst to think that a lending firm can go bankrupt due to issues with their loan customers and funders, but that loans provided by the defunct firm aren’t worth a review (see our post "Sub prime market not so sublime", March 12 07) around the time of the lender’s own tipping point.

The bonds downgraded (or placed under review) by Standard Poors include three that were previously rated AA, and 88 that were formerly in the A category. More scary for the pension fund crowd are the 366 that were formerly BBB rated, which in many cases means that the bond in question is no longer "investment grade" if it is dropped two notches (from BBB to BBB minus to BB+). This will ensure that some funds might be forced to sell,
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Here’s the rub; some of the more conservative fixed income desks strive to earn maybe 100 basis points a year above the "risk free" rate on their portfolio of bond investments. If that pool of assets is,
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If you had allocated merely 1.5% of your portfolio ($30 million) to these higher yielding mortgage bonds, and the bids drop to 70 cents on the bonds that were formerly BBB rated and are now sub investment grade a huge portion of that $20 million of targeted annual yield profit (ie., above the risk free) just got wiped out.

To make matters worse, according to the WSJ,
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As you’ve read here since we began our corporate blog last September, the debt market has not been pricing for risk across the entire spectrum. The spreads on junk bonds are half what they were a few years ago; not enough has changed in corporate America to warrant such a notional improvement in credit risk. The trend that began a few days ago might be taking hold, as Swift Co. had to pull their US$600 million leveraged bond offering on Monday due to a lack of market appetite (see prior post "LBO debt spreads widen, PE deals looking rocky", June 29 07).

If US$50 billion of adjustable rate mortgages are due for 2.0% rate increases this summer, and housing prices are no longer rising (which allowed folks to re fi, taking out a larger mortgage and use the cash to make their monthly payments),
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And Moody’s has just downgraded merely 1.2% (!) of their 2006 subprime bond ratings,
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With billions of more loans going up in price this summer, you’d have to think that more downgrades are coming in both with the CDO and MBS markets.

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And that’s not the only collateral damage. CIBC (NYSE:CM),
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This is the reality of the capital markets. Despite all of the positive news in the equity markets,
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Then there are the new plays,
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