Banks fear rout on risky US bonds

The U.K. Telegraph reports:

Credit markets across the world were braced for trouble last night after Merrill Lynch abandoned efforts to save two Bear Stearns hedge funds, forcing the sale of $850m (£426m) of sub-prime mortgage bonds and other assets for debt repayment.

JP Morgan and other key creditors have yet to decide whether to enforce margin calls as a panic sell-off in the market for 2006-vintage mortgage securities pushes the two asset management funds towards the brink.

Sources close to the deal said Bear Stearns was trying to organise "an orderly unwind", conceding that the funds could not be saved.

Mortgage rates are probably going higher as risk is seen in repayment.