The first phase of the liquidation of the $1.5 billion in assets of Grenadier Funding, a Citigroup Inc. affiliate, drew strong demand Tuesday, according to sources.

The auction of a portfolio of residential mortgage-backed securities mostly backed by subprime mortgages was reflective of rising prices and growing demand for these bonds.

"The bonds traded very well," said Keith Lind, managing director of asset-backed trading at RBS, which bid and bought some of the debt. He said the prices on these assets ranged from the low 30 cents to the low 90 cents on the dollar, depending on the health of the collateral.

But as risk premiums, or spreads, in other asset classes have narrowed, investors looking at higher-yielding options have been buying distressed debt. In addition, many boutique firms and big investors have raised funds expressly to buy distressed assets.

The liquidation encompasses five portfolios of assets from Grenadier Funding issued in 2003.

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