Wednesday, September 12, 2007
Another housing problem contained: sub-prime mortgages cause muni bond downgrades
Even in today's "anything is possible" world of chaos and hyper-correlation, you have to read it twice to really get it: ratings are being cut on $16 billion of municipal bonds because of the subprime disaster. The link? A muni insurer, Radian, also runs a mortgage insurance subsidiary. No bonus points for guessing what's happening to the CDOs insured by Radian. Radian insured munis are now trading at 100 bps or more above other insured bonds. Pity the poor retiree who wasn't obsessing over the latest subprime/credit crisis news like the rest of us and wakes up to find his bond portfolio taking a bath.