Despite its virtuoso status as a debt-savvy dealmaker, Bear may be in over its head this time with a fistful of bonds backed by subprime loans.

A hedge fund managed by Bear Stearns Cos. is scrambling to sell large amounts of mortgage securities, a setback for a Wall Street firm known for its savvy debt-market trading.

The fund makes bets on bonds backed by mortgages, many of which are subprime – meaning they go to especially risky borrowers.

Faced with losses on its investments, the fund, called High-Grade Structured Credit Strategies Enhanced Leverage Fund, together with a sister fund, is trying to sell about $4 billion in mortgage-backed bonds to raise cash, according to people close to the fund and traders who have been solicited to buy the bonds.

The sales represent a sliver of the $7 trillion residential-mortgage-backed bond market, but it is still a large amount to be sold at one time and a potentially troubling sign for the broader mortgage-backed bond market.

In a separate matter, Bear, a feisty company run with a hands-on approach by Chairman and Chief Executive James Cayne, has also been arguing with other hedge funds over its trading desk's dealings in the mortgage-backed securities market. In part because it is exposed to the mortgage-bond business, Bear is expected by analysts to report a 6% drop in fiscal second-quarter earnings today, compared with a year earlier. Bids for the sale of bonds are due at 10 a.m. EDT today -- shortly after Bear announces its results.

(Continue reading this story on WSJ)

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