Standard & Poor’s was attacked yesterday for its overoptimistic outlook for $34 billion of US mortgage bonds even after the ratings agency announced a series of downgrades.

The agency lowered its ratings for 1,326 classes of American mortgage-backed alternative A bonds, which are backed by mortgages sold to borrowers one rung above sub-prime. So-called Alt A mortgages – nicknamed “liar-loans” – are often sold to people not eligible for prime mortgages, possibly because they are self-employed and unable to prove their income.

S&P said it assumed that should some of the bonds default entirely, it believed that investors would be able to recover two thirds of the value of the bond.

Toby Nangle, fixed income investment manager at Barings, said: “They are sticking with a very optimistic set of assumptions. One might assume that you could recover 66 per cent at the top of the housing market but not in the current environment.”

The downgrade for such a substantial chunk of mortgage-backed bonds reinforced concerns that the worst is not yet over for the global credit crisis.

While bonds that have used sub-prime debt as collateral have already been downgraded to junk or written off as worthless, fixed-income specialists are expecting the rate of defaults to extend to less risky borrowers such as Alt A, second-line mortgages such as home equity loans and also prime.

Mr Nangle said: “The rating agencies are still playing catchup. They are still far too conservative.”

At the same the Bank for International Settlements – the central banks’ bank – accused ratings agencies of ignoring signs of a severe slow-down in the US housing market and of factoring in the effect on to the value of some of the securities they rate. Next month the Securities and Exchange Commission is expected to propose rules that will force ratings agencies to apply a more transparent risk ranking for different types of debt.

The regulator is expected to tell agencies to differentiate more clearly between the risk associated with ordinary corporate and local government bonds and those backed by mortgages.

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