Josef Ackermann is a well-groomed Swiss banker who runs global financial giant Deutsche Bank. On Thursday 6 September the front page of the Financial Times screamed, ‘Ack­ermann urges steps to restore investor confidence’. It explained that ‘investors lacked confidence in the financial markets and in the banking sector because they were uncertain about the size and location of losses.’ In other words, no one knows where the bodies are buried.

With bad US sub-prime loans popping up from Düsseldorf (IKB Deutsche Industriebank) to Sydney (Basis Capital), and several big name US investment banks being implicated, bankers have become wary of lending to each other.

Executives like Ackermann are extremely nervous, with good cause, that any given borrower might be on the verge of announcing billions in hidden losses on bad US sub-prime mortgages. This fear has driven up interest rates in interbank markets around the world – the money markets in which banks set short-term lending rates (most commonly 90 days) among themselves.

In bond markets, when yields go up, prices go down. And so prices in bond markets have been falling lately. This would be interesting enough but in today’s markets, inhabited by turbo-charged hedge funds employing loads of debt to magnify their returns (up and down), we’re starting to see some exciting ramifications. Exciting, that is, for cautious value investors who’ve steered clear of most income securities in recent years due to the lack of compensation for the risk they entail.

But those who ‘reached for yield’ in some hideously complex ‘income security,’ climbed up the risk curve to bag an extra percent or two of return. In some cases they have suffered huge capital losses. The likes of Westpoint, Fincorp and ACR have been well publicised but a noxious crop of securities engineered by investment banks and sold to yield-hungry investors have caused great damage, too.

The ludicrously-named Nexus4 Topaz Notes (from the Australian outpost of Ackermann’s Deutsche Bank) listed at $100 in June 2005. The market price of these ‘capital guaranteed’ (in 2015) securities has been slashed to a little over $70. ALPHA Managed Income Notes, promoted by ABN Amro to appeal to self-managed superannua­tion funds, has lost more than a quarter of its value since April.

And the reason? Because bankers are no longer comfortable lending so much money to buy securi­ties that seem to be falling in price almost daily, they’re politely requesting hedge fund managers and their ilk to liquidate a portion of their portfolio to pay down their debt. That’s why prices have dropped and that’s why opportunities are now emerging. Forced selling tends to do that.

Our team has recently introduced buy recom­mendations on five income securities but we suggest you play the game selectively and opportu­nistically. It’s a superior strategy to simply respond­ing to an enthusiastic phone call from your broker offering a new-fangled income security with a fat fee attached.