The US mortgage bonds that triggered the 2008 financial crisis brought international banks to their knees and were widely regarded as toxic. However, they have regained value to such an extent that Lloyds Banking Group has dusted them off to help shore up its balance sheet.
The bank, which is 40pc owned by the Government, has reportedly put $8.7bn of US mortgage bonds up for auction, as part of its effort to raise capital by selling non-core assets. Although the move is designed to bolster Lloyds' capital reserves, it also reflects the return to health of the American housing market and investor confidence in subprime mortgage debt.
House prices in America grew at their fastest rate in seven years in March, new data revealed on Tuesday, fuelled by cheaper borrowing costs, rising consumer confidence and a shortage of new properties. In the US' 20 largest cities, average prices jumped 10.9pc year on year, up from a 9.4pc hike the month before, according to S&P/Case-Shiller index. Economists had been forecasting a 10.2pc increase.
"House prices are going up nearly everywhere because of shortages," said Patrick Newport and Stephanie Karol, US economists at HIS Global Insight. "Construction of single-family homes has been depressed since late 2007 in nearly every state. Meanwhile, the US population has increased by more than 12.0m since the end of 2007."
The property market's gathering momentum has fuelled confidence amongst investors that they can risk making bets on mortgage bonds without a high default rate. Around a fifth of houses that change hands in the US are still sold after they have been repossessed, but that figure is down from 28pc a year ago and includes many properties that have been sat on the banksa426; books for years.
Demand for mortgage bonds which are not backed by US government-controlled mortgage lenders, Freddie Mac and Fannie Mae, has soared since the start of last year, as central banks curb yields on safer debts and investors seek out potentially higher yields elsewhere. Returns on subprime mortgage bonds jumped 41pc in 2012, and have climbed a further 12.7pc this year, according to data from Barclays.
Lloyds has had US mortgage bonds on its books since 2008, when it acquired HBOS, one of the mortgage lenders which failed in the financial crisis. It valued them at just under $5bn at the end of last year, according to its annual report, but demand for the bonds has risen considerably in the last few months, pushing that figure up further.
"Home price appreciation has helped out a lot of banks," said Michael Gapen, director of US economic research at Barclays. "Anything that is structured in a way that has a US mortgage debt in its underlying assets is increasing in value."
Lloyds declined to comment or confirm the sale.
However, chief executive, Anta23;nio Horta-Osa23;rio, said last week that it would "meet its additional capital requirements through its strongly capital-generative core business, continued progress in executing the group's customer focused strategy and further capital accretive noncore asset disposals."
Lloyds is understood to be keen to sell the bonds to help shrink its balance sheet and ensure it does not need to sell new shares.
Investors outside America hold more than $194bn of subprime US mortgage bonds - just over a fifth of the total market.