Tags: Toxic | subprime | mortgage | bonds

WSJ: Investors Ready to Chance Toxic ‘Subprime’ Securities Again

By    |   Friday, 17 Feb 2012 11:32 AM

You might think that after soured subprime mortgage securities helped spark the biggest financial crisis in 70 years, investors would consign those securities to the dust bin of history. Well, think again.

Intrepid investors are going back in, and they’re making money, The Wall Street Journal reports.

Some subprime mortgage bond prices have registered double-digit percentage gains so far this year, with one prominent market index soaring 14 percent.

Buyers are betting that the housing crisis has hit its nadir and that a rebound will soon arise. But current prices of the bonds are more appropriate for a disaster scenario, creating a buying opportunity, the bulls say.
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Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal
Over one million Americans have heard the evidence for 50% unemployment, 90% stock market crash, and 100% inflation. Be prepared. Watch the Aftershock Survival Summit Now, See the Evidence.

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"The probability of a collapse in housing or another significant leg down has diminished," Joshua Anderson, a portfolio manager at Pimco, tells The Journal.

The bonds yield 7 percent to 9 percent, or 3 ½ to 4 ½ times that of a 10-year Treasury bond.

This environment has led some money managers to create investment funds to snap up distressed subprime mortgage bonds.

Of course there’s no guarantee the strategy will succeed. "This market was the hardest hit last year," Chandra Bhattacharya, a Credit Suisse strategist, tells The Journal.

But some heavyweight players have taken the plunge, including hedge fund managers Kyle Bass and John Paulson, who made out big-time betting against subprime mortgage securities during the financial crisis, Bloomberg reports. Goldman Sachs and AIG are buying too.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal
Over one million Americans have heard the evidence for 50% unemployment, 90% stock market crash, and 100% inflation. Be prepared. Watch the Aftershock Survival Summit Now, See the Evidence.

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