Though uncertainty over government plans to spur mortgage modifications has hurt the value of nonagency securities, an increase in the use of principal forgiveness could generally be favorable to investors in senior bonds, according to analysts with Barclays PLC's investment bank.

Modifications of loans in bonds reflected in Markit's benchmark ABX indexes for 2006 and 2007 increased to a monthly rate of between 0.01% and 0.018% of outstanding balances in September, from close to nothing at the beginning of last year, according to a report the analysts released Monday.

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