Posted by Leonard Steinberg on January 13th, 2012

Friday the 13th delivered bad news for Europe as France, Austria, Portugal and 4 other countries were down-graded by Standards + Poor the same agency that downgraded the USA late last year. On the good news front, hedge-fund billionaire John Paulson, who made $15 billion in 2007 betting against U.S. subprime mortgages is sticking with bullish investments in residential and commercial mortgage securities, helping his Credit Opportunities Ltd. fund gain about 1 percent last quarter to narrow its 2011 decline to 18 percent.

Renewed demand is helping to fuel a rebound that’s allowing the Federal Reserve bank of New York to attract buyers for bonds it took over during the rescue of AIG in 2008. It dropped efforts in June to sell that debt after sending prices tumbling in credit markets. Neuberger Berman Group LLC, Pine River Capital Management LP and Metacapital Management LP also see value in the $1.1 trillion market for non-agency debt, or home-loan bonds without government backing.

“Investors can make attractive returns without any improvement in the economic landscape,” said Troy Gayeski, who helps invest $3 billion of client money in hedge funds at SkyBridge Capital LLC in New York. “It’s the second-most compelling opportunity for hedge funds by far,” trailing only speculation on the pace of repayments in mortgage securities backed by the U.S. government.

The message appears to be that while real estate will not rebound quickly, it appears to have bottomed out although most agree 2012 could see a further slight decline in valuations. Overall its good news though.