(Bloomberg) – A credit market crisis deepened over the weekend, with a group of funds holding mortgage bonds and other asset-backed securities seeking to sell billions of dollars in assets, a fund blamed unprecedented investor withdrawals.
Sales included at least $ 1.25 billion in securities listed by the AlphaCentric Income Opportunities Fund, according to people familiar with the sales. He sought buyers for a strip of bonds backed mainly by private label mortgages as he sought to raise funds, said the people, who asked not to be identified when discussing the private deals.
“The coronavirus has caused serious market disruption and liquidity problems for most segments of the bond market,” Jerry Szilagyi of AlphaCentric said in a statement sent by email on Sunday. “The Fund is not immune to these upheavals” and “like many other funds, it acts quickly to cope with unprecedented market conditions”.
The best way to get favorable prices is to offer a wider range of securities to bid, he said, refusing to discuss the amount of securities the fund has offered for sale.
Funds that buy bonds of all kinds – from the debt of the largest US companies to mortgage-backed securities – have struggled to record withdrawals from investors in volatile market conditions in fixed income markets. The rush to unload mortgage-backed securities indicates that a credit crunch that started with corporate bonds is spreading to other corners of the market.
In the middle of the sale, the Structured Finance Association, an industry group in the asset-backed securities market, called on government officials on Sunday to intervene and help increase liquidity in the market.
In a letter to US Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell, the industry group said that “the future course of the pandemic has significantly disrupted the normal functioning of the credit markets”.
The group asked them to “immediately enact a new version of the Asset-Backed Securities Lending Facility”, a program of the financial crisis era that helped support the issuance of mortgage-backed securities. consumer and small business. Such a move, the group said, would help improve liquidity and the functioning of crucial credit markets.
“The overwhelming supply of securities for sale to meet the redemptions has put significant downward pressure on almost all segments of the bond market,” Szilagyi said in the release.
The AlphaCentric fund plunged 17% on Friday, bringing its total decline for the week to 31%.
“We can most likely expect further price volatility across the bond market until the panic subsides and market uncertainty subsides or government agencies intervene to support the market more broad of fixed income securities, “said Szilagyi.
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