Subprime Bondholders May Lose $75 Billion From Slump

Bloomberg reports:

Bond investors who financed the U.S. housing boom are starting to pay the price for slumping home values and record delinquencies in subprime loans.

They will lose as much as $75 billion on securities made up of millions of mortgages to people with poor credit, says Pacific Investment Management Co., manager of the world's biggest bond fund. Some of the $450 billion in subprime mortgage-backed debt sold last year has lost 37 percent, according to Merrill Lynch & Co.

BlackRock Inc., AllianceBernstein Holding LP and Franklin Templeton Investments are vulnerable because investors have replaced banks and thrifts as the primary source of money for U.S. mortgages. More than $6 trillion of mortgage bonds are outstanding, dwarfing the amount of U.S. government debt by about 50 percent.

``Bond investors will be the ones who will take the losses,'' not the banks, said Scott Simon, who oversees $250 billion in asset-backed securities at Newport Beach, California- based Pimco, a unit of insurer Allianz SE in Munich.

An article well worth your time.We predict mortgage rates are going higher relative to U.S. Treasury Bonds.