“‘We remain nervous about the end of the week, when many leveraged investors in the CDO markets will have to mark down their positions,’ debt strategists at Barclays Capital in New York said in a June 28 report. ‘The worry is that this will be large enough to trigger margin calls which, in turn, will cause other liquidations and so on.’”

“A senior portfolio manager of a U.S.-based mortgage arbitrage hedge fund told The Post that the fund woes in London were `totally secondary to the mortgage market’s real concern: the end-of-June valuation process.’

The hedge fund partner referred to the close of business this week, when hedge fund portfolios are valued, largely from the trading data provided by Wall Street brokers.

The bond value declines across the subprime-mortgage spectrum are likely to lead to performance losses for many hedge funds, although exactly which ones facing pain is the subject of much trading-room gossip.

Also at month’s end, hedge funds that have, or are perceived to have, subprime-mortgage bond exposure are going to have to begin to return the capital of investors who have requested it back.”