“The U.S. mortgage bonds that were exported around the globe and triggered the worst financial crisis since the Great Depression are now helping Europe’s banks and governments repair balance sheets after jumping in value.
Lloyds Banking Group Plc (LLOY), Britain’s biggest mortgage lender, is auctioning $8.7 billion of mortgage debt to plug a capital shortfall, a month after Lone Star Funds and Credit Suisse Group AG paid 6.7 billion euros ($8.7 billion) for assets taken over from the failed Belgian bank Fortis. The Netherlands can sell debt from the bailout of ING Groep NV (INGA) at a “decent profit,” Chief Executive Officer Jan Hommen said this month.
While European banks and governments need to sell assets to raise capital or repay taxpayer-funded rescues, investors are seeking riskier, potentially higher-paying securities as central banks globally push down yields on safer debt. With U.S. home prices rising at the fastest pace in seven years, that has turbocharged demand for non-agency bonds, with subprime-backed debt returning 12.7 percent this year after rallying more than 41 percent in 2012, according to Barclays Plc data.
“Fundamentals of housing continue to improve, and the asset class itself continues to shrink in size as borrowers repay debt or default,” said Harrison Choi, a bond manager for TCW Group Inc., which oversees about $131 billion in assets.
