On Wall Street, Bear Stearns, Lehman, Merrill Lynch and, yes, even the venerable Goldman Sachs are as good as junk. Their bonds are, anyway.

Bonds of the monster U.S. investment banks lost about $1.5 billion of their face value this month as the risk of owning their securities increased the most since at least October 2004, according to Merrill indexes.

Prices of credit-default swaps based on the debt of Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc. imply that their credit ratings are below investment grade, data compiled by Moody's Investors Service show.

The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year.

"The market is being driven by fear," said Mark Kiesel, who oversees $80 billion of corporate debt at Newport Beach, California-based Pacific Investment Management Co., manager of the world's biggest bond fund.

Credit-default swaps tied to $10 million of bonds sold by Bear Stearns, the second-largest underwriter of mortgage bonds, rose to about $110,000 on July 27, from $30,000 at the start of June, indicating growing investor concerns.

The contracts, financial instruments based on bonds and used to speculate on the chances of default, imply a rating of Ba1, one level below investment grade and six lower than Bear Stearns' A1 ranking, according to New York-based Moody's.

(Continue reading this story on Bloomberg)

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