Over much the last decade, supposedly conservative cash investors steadily increasing their risk appetite was a widespread phenomenon. Recent credit developments in the mortgage and debt markets helped raise risk awareness levels. This paper summarizes the risk behavior of corporate cash and money market fund managers into eight broad categories. Corporate investors are advised to check for these potholes as an ongoing exercise. The eight potholes to avoid are: overconfidence in credit ratings, risks masked by securitisation, hidden financial leverage, exotic repurchase agreements, extendible securities, structured notes, speculative use of credit derivatives, and hedge funds.

Amgen, Baker Hughes, Dow Chemical and a handful of other corporations with high credit ratings and sagging share prices have become leveraged buyout candidates. Observers say that as the prospect of higher bond yields and more expensive debt appears, certain companies with the best ability to sustain debt payments will look more attractive to buyout shops.

“They’re absolutely better candidates,” said Lance Pan, director of investment research at Capital Advisors Group in Newton, Mass., who compiled the LBO list.

U.S agency and mortgage-backed debt yield spreads widened as both sectors trailed a Treasury market rally on Tuesday spurred by investors clamoring for safe assets on mounting subprime mortgage woes.

Growing subprime lender troubles, rising delinquencies and foreclosures driven by loans made to borrowers with weak credit, and softer-than-expected retail sales data fueled talk that the Federal Reserve might cut interest rates.

“There’s a contagion effect,” said Lance Pan, director of credit research at Capital Advisors Group in Newton, Massachusetts. ” But we don’t view this as a fundamental reason to dislike the sectors — the fundamentals remain quite solid, he said of the mortgage and agency segments.