Bundesbank Lehman Asset Sale to Benefit From 6-Month Bond Rally

Nov. 13 (Bloomberg) -- Germany’s Bundesbank will benefit from a six-month rally in bond markets as it unloads mortgage- backed securities that Lehman Brothers Holdings Inc. pledged as collateral for loans in the worst credit crisis since the 1930s.

The central bank of Europe’s largest economy hired Morgan Stanley and structured finance advisory firm AgFe Ltd. to manage the 823 million-euro ($1.2 billion) sale, said the people, who declined to be identified because the deal is private. Investors are being asked to bid on nine portions of notes Lehman created between November 2007 and August 2008, according to a list of the assets seen by Bloomberg News.

“A lot of investors refused to sell at distressed prices, but right now spreads are tightening and we might see some players starting to accept some bids,” said James Zanesi, a Munich-based credit analyst at UniCredit SpA.

Prices in the 2.2 trillion-euro market for bonds backed by consumer debt, corporate loans and real estate have rallied amid growing investor confidence that the worst of the global recession may be over. Asset values had plunged to record lows after securities linked to U.S. subprime mortgages tumbled and credit markets began to freeze in August 2007.

Yield spreads on top-rated prime mortgage-backed notes have narrowed to 155 basis points more than benchmark rates, down from 425 at the start of the year, JPMorgan Chase & Co. data show. Yields, which move inversely to prices, are near the lowest since July 2008. A basis point is 0.01 percentage point.

ECB Loans

Bundesbank spokesman Andreas Funke in Frankfurt declined to comment on the sale. Morgan Stanley spokesman Carlos Melville and AGFE Chief Executive Officer Paul Rolles, both based in London, also declined to comment.

The Bundesbank is part of the so-called Eurosystem network of central banks and provides loans to financial institutions under a program overseen by the European Central Bank. Lehman, which collapsed in September 2008, was among five banks that defaulted on 10.3 billion euros of loans from the ECB, the Frankfurt-based central bank said in March.

ECB spokesman Raphael Anspach in Frankfurt declined to comment.

The securities offered for sale are still eligible as collateral for ECB loans, according to the central bank’s Web site. The transaction is due to be completed next week.

To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net