The risk of owning corporate bonds soared in Europe after Bear Stearns Cos. blocked investors from withdrawing money in a hedge fund as subprime mortgage-related losses spill into other parts of the debt market, Bloomberg reports.
Bear Stearns, which triggered a credit sell-off in June because of the near-collapse of two hedge funds, yesterday froze its $900 million Asset-Backed Securities Fund, even though less than 0.5 percent was invested in debt linked to subprime loans.
Investors are shunning all but the safest assets as the worst U.S. mortgage default rate in a decade punishes the banks and hedge funds that package home loans into new securities.
Credit-default swaps, contracts based on debt, jumped by the most in at least three years in Europe, after surging in the U.S. yesterday, a sign perceptions of credit quality are deteriorating.