by Calculated Risk on 7/11/2007 08:59:00 PM

Note: I changed the post title. Orginally I quoted the WSJ blurb that Moody's had cut the ratings, but that appears to be premature. The WSJ blurb:

"Moody's cut its rating on some $5 billion in CDOs, a sign of the subprime market's impact on other investments."

Orginal post: From the WSJ: CDOs Are Hit With Fallout From Laxity With Subprimes

Turmoil in the subprime-mortgage market fanned out yesterday, hitting a group of investments that are exposed to this struggling class of home loans.

Moody's Investors Service said yesterday it may cut its credit ratings on slices of 91 collateralized-debt obligations, or about $5 billion of securities. It is a small percentage of the overall CDO market, but still an important development, because it is a signal that subprime fallout is rippling through financial markets to an important class of investments.

In another sign of these ripple effects, Fitch Ratings released a report yesterday raising cautionary flags about the commercial real-estate market. It projected rising defaults in this sector after years of increasingly lax lending standards, which could hit bonds backed by commercial real-estate loans.

UPDATE: Financial Times: Investors’ flight from risk picks up pace

Investors in European and US credit markets accelerated their flight from risk on Wednesday as the turmoil from the US mortgage markets continued to spill over into other asset classes.

The change in sentiment, which triggered sharp moves in credit derivatives markets, suggested that recent problems in the subprime mortgage sector could be spreading to other corners of the financial world.
...
JPMorgan observed that swings in derivatives prices were so extreme they implied “scenarios in which the core of the global liquidity system suffers a serious assault”. But it stressed “the meltdown in the credit indices seem completely at odds” with trends in the real economy, implying it should be reversed.