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Oh no, mortgage-backed bonds return

Lloyds bank has today announced the issue of £3 billion of mortgage-backed bonds which have been lifted from the HBOS loan book and used to raise funds in the money markets. Those who are aware of mortgage-backed bonds will be cautious to say the least as many people believe these particular investments led to the downfall of the worldwide economy nearly 2 years ago. So what has changed?

While these particular mortgage backed bonds appear to be more straightforward than some of the more complicated ones which came to the fore two years ago, there is a concern we are moving towards a slippery slope. Many people are also surprised to see that these Lloyds bank, in which the UK government has a 43% stake, is the first to put a toe back into the mortgage bond market at a time when money is still tight and investors are looking for top quality backed assets.

It will be interesting to see if any other UK banking companies follow suit as very quickly we could see the re-emergence of the mortgage-backed bond market, something which many people had hoped to have seen the last of some time ago. Whether the UK government and regulators will step in with additional safeguards is something which needs to be considered sooner rather than later.

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