The Federal Reserve Bank of New York's sales of the mortgage securities it assumed in the 2008 rescue of American International Group Inc. would probably fetch $15 billion "at most" at current prices, less than the insurer offered, according to Barclays Capital analysts.
"As such, while it does not have to be the case, a significant slowdown or even a temporary halt in sales till the market recovers should not be ruled out," analysts at Barclays Capital, led by Ajay Rajadhyaksha, wrote in a June 10 report.
The New York Fed is selling the bonds piecemeal after rejecting a $15.7 billion bid for the securities from AIG in March. Before AIG's offer for the $31 billion of debt was declined, investment banks including Barclays Capital, Credit Suisse Group AG and Morgan Stanley tried to put together groups of investors to offer rival bids for the entire pool, people familiar with the matter said at the time.
The central bank's auctions have combined with signs of a weakening U.S. economy and a deepening European sovereign crisis to help roil markets, including those for subprime mortgage securities and high-yield corporate bonds, as investment banks seek to dump risk on stockpiled debt.
Drops last week in commercial mortgage securities, which were stoked partly by the Fed's auctions, "evoked memories of the 2008 market meltdown," Bank of America Merrill Lynch said in a June 10 report.