Ratings migration is a term that few outside the structured finance world are aware of or particularly interested in; this is about to change. Although the history of US RMBS since its inception in the mid 1980s has been relatively straightforward – very few defaults and until recently no major crisis – its status as one of the safest and most stable of investments at the triple-A level is under threat.
The savage downgrades that Moody’s and Standard & Poor’s have inflicted on second-lien sub-prime RMBS, and margin calls at Bear Stearns hedge funds that were long of CDOs backed by sub-prime, have caused turmoil on the wider markets and are set to have serious ramifications for the wider credit market.
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