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Monday, July 13th, 2020 MST

Housing bond market set to collapse?

Investors following the housing and the bond markets will find Ambrose Evans-Pritchard’s “Banks set to call in a swathe of loans” an interesting, if not frightening, read. “The fast-moving crisis at two Bear Stearns hedge funds,” the article notes, “exposed the underlying rot in the US sub-prime mortgage market, and the vast nexus of collateralised debt obligations known as CDOs.” (The article is on a forum-type site, and the older this post gets the further down the site viewers will have to scroll.)

The article further notes that Bear Stearns has now put up $3.2 billion, a quarter of its capital, to rescue one of its hedge funds. This is the biggest bail-out since the Long-Term Capital Management crisis in 1998.

For readers not following the bond market in 1998, the Long-Term Capital Management crisis so threatened the bond market that the Fed engineered a bailout.

Any wonder that the large commercials recently reduced their long dollar positions? (See June 26 post below.)

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