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Bond Outlook November 21st

Each dispersal of the fog reveals greater sub-prime losses, contagion to other markets and more reasons to expect a continually falling dollar. And bond market liquidity is again worsening.

Bond Outlook [by bridport & cie, November 21st 2007]

We are almost beginning to believe that there might be something in the “Tuesday effect” we half-jokingly hypothesised last week. It is not just that Tuesdays are proving to be positive for the DJIA, but that the market rebounds are happening despite a series of bad news. This week there has been no shortage of negative announcements. Whereas a couple of weeks ago the talk was of USD 20 billion announced losses from sub-prime out of a likely total loss of USD 100 – 200 billion, now it is USD 50 billion out of a likely total of USD 400 billion. The latter figure concerns only sub-prime. Already in the mortgage market, contagion to “Alt A” and prime mortgages is showing up, not least in the losses announced by the two government-sponsored mortgage agencies. More is likely to be revealed about the practices of the two agencies. Have they been fulfilling their duty to assist the general public in acquiring housing or have they been stepping outside their remit?

There are at least six other asset types, often “level 3” (meaning basically unsaleable).

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