Investors owning Lehman Brothers bonds face potential losses of close to $120bn, reflecting the sharp reductions in the value of assets that are likely to be left to be paid out to creditors.
In the week since Lehman Brothers, the fourth largest investment bank in the US, filed for bankruptcy, the value of its bonds have plummeted.
Further losses on its derivatives positions, which are still being unwound, could leave even less on the table for bond investors, according to traders.
“I don't know how this will play out for bondholders, but I doubt if it's going to be good,” said Dan Fuss, vice-chairman of Loomis Sayles, which has a small holding of Lehman bonds. “That's what the market tells you and it tells you that so strongly.”
Lehman bonds were widely held by investors such as pension funds and mutual funds. This means the losses will have a far-reaching effect on ordinary investors, and the damage from Lehman Brothers has contributed to an unwillingness by investors to take on credit risk.
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