Mortgages
Across mortgage land, there are mounting concerns that a growing number of unemployed consumers may soon fail to make payments.

Mortgage real estate investment trusts rely on borrowed money to build their holdings. That leverage helps drive higher returns than what they would eke out by simply collecting interest coupons from the underlying debt. Counterparties are willing to lend because of the pledged collateral.

New Residential Investment Corp., a real estate investment trust focused on housing, has been selling off a portfolio of debt with a face value of $6 billion at a discount in recent days as it seeks to reduce risks and improve liquidity. The REIT, managed by an affiliate of Fortress Investment Group LLC, has said it sometimes uses leverage in the form of financing from banks and securities sales to enhance returns.

Read more: Fortress-Managed New Residential is selling $6 billion of debt

Last week, AG Mortgage Investment Trust Inc. said it had failed to meet some margin calls from financing counterparties and that it didn’t expect to meet future margin calls with its current financing. The firm, which said it planned to talk with financing counterparties, didn’t elaborate on the transactions at issue.

Some, like Cherry Hill Mortgage Investment Corp. have also been dealt a blow on so-called credit-risk transfer trades. Such securities offer higher returns on a pool of residential loans because investors agree to take borrower default risk off the hands of Fannie Mae and Freddie Mac. The lowest-rated slices of that debt have plunged because they’re the first to take a hit if the loans go bad. That contributed to the troubles at Cherry Hill, which elected to pay half its dividend in stock last week, citing market volatility.

Muni Bonds
In the $3.9 trillion municipal-bond market, large municipal-bond funds run by Nuveen, BlackRock Inc., Pacific Investment Management Co. and Invesco Ltd. unwound a leveraged investment strategy that backfired last month when short-term borrowing costs spiked.

The companies liquidated $2.5 billion of tender-option bond trusts, contributing to a flood of debt unloaded during a record-setting selloff. The trusts issue floating-rate notes to money-market funds and use the cash to buy higher-yielding long-term bonds. Mutual funds seek to pocket the difference in yield between the two.

Treasuries
Even swings in prices on the most ironclad securities can catch wrong-footed investors.

Hedge funds got hammered by moves in the Treasury market last month that derailed a popular strategy. The maneuver uses money borrowed from repo markets to exploit differences between cash Treasuries and futures. Some firms had levered up wagers as much as 50 times, people familiar with the situation told Bloomberg. Leveraged funds’ exposure to the so-called basis strategy could be as much as $650 billion, JPMorgan strategists said.

Read more: How leverage burned hedge funds in Treasury market