"Irrational" mortgage bond prices polarize market

"NEW YORK (Reuters) - Buyers in the $565 billion market for so-called sub-prime mortgage bonds are clamoring for the high-yield securities, even though experts increasingly warn that pricing has reached "irrational" levels.

Rising delinquencies and forecasts of a deepening deterioration in housing have prompted big investors, including hedge funds, to bet against the securities since late 2005. But prices on bonds backed by loans to riskier borrowers have remained stubbornly high -- longer than many analysts expected -- as yield-hungry investors insist that built-in loss protections are adequate.

"The sub-prime home equity market is in the midst of a giant tug of war," said Tom Zimmerman, an analyst at UBS Securities LLC in New York. The market "is on the border line."

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