June 27 (Bloomberg) -- Merrill Lynch & Co. Chief Executive Officer Stanley O'Neal said rising foreclosures on subprime mortgages in the U.S. aren't affecting other parts of the bond market.

``It's reasonably well contained,'' O'Neal said today at a conference organized by Euromoney Institutional Investors Plc in London. ``There have been no clear signs it's spilling over into other subsets of the bond market, the fixed-income market and the credit market.''

O'Neal joins Freddie Mac Treasurer Timothy Bitsberger and Lehman Brothers Holdings Inc. Chief Financial Officer Chris O'Meara in seeing little risk of wider fallout from rising delinquencies and defaults in the mortgage market. Bear Stearns Cos. earlier this month was forced to bail out a money-losing hedge fund that had investments linked to subprime mortgages, or home loans made to the riskiest borrowers.

Bitsberger said yesterday that delinquencies and defaults among subprime borrowers are ``severe but contained'' and the securities are owned mainly by ``large institutional players who can withstand the loss.''

O'Meara said June 14 that risks posed by rising delinquencies were ``well contained'' and would not ``create a big event in the economy.'' ``The credit quality elsewhere is very strong,'' he said.

The perceived risk of owning U.S. corporate bonds yesterday fell from the highest in more than nine months as concern eased that subprime mortgage problems would spread, according to credit-default swap traders who bet on creditworthiness.

First Franklin

Merrill, the world's third-biggest securities firm by market value, has expanded in subprime lending and the business of packaging loans into securities that can be sold to investors. Late last year the New York-based firm bought First Franklin, which specializes in loans to people with low credit scores, for $1.3 billion.

Merrill also is the world's biggest underwriter of collateralized debt obligations, or CDOs.

``There are risks in some of the structures, in some of the complexities of CDOs, mortgage-backed securities and particularly prime brokerage, but there's no clear sign that there's contagion developing,'' O'Neal said.

O'Neal, 55, said rising interest rates haven't tempered the appetite for leveraged buyouts, or takeovers by private companies using borrowed money.

``We have extremely low interest rates by historical standards,'' said O'Neal, who pushed Merrill to enter the private-equity business early this decade. ``Even with rates trending up and higher risk premiums, leveraged finance at any credit rating is still cheaper than it used to be, certainly when I used to do leveraged finance 20 years ago.''

There is no way to ``predict what the event will be that will cause contagion,'' O'Neal said. ``The only surefire way to prepare for that is to manage liquidity.''

To contact the reporters on this story: Sebastian Boyd in London at sboyd9@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: June 27, 2007 08:19 EDT