Subprime caught the markets' attention again last week, leading to a flight to quality that moved the 10-year Treasury yield back to 5.04% at Tuesday's close. This happened after it hit 5.195% when the June employment report was released on Friday, July 6. That holiday week saw interest rates climb steadily on stronger than expected data, peaking with a 65,000 upward revision in nonfarm payrolls in April and May.

Attention last week, however, was focused squarely on credit as data were on the light side. In particular, Standard & Poor's announced that it placed on watch for potential downgrade $12.1 billion worth of RMBS backed by subprime. Later in the day, Moody's Investors Service announced it had lowered its credit ratings on $5.2 billion in 399 subprime RMBS issued in 2006(See cover story).

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