Subprime and other residential mortgage bonds that helped trigger the financial crisis are back in vogue with long-term investors, in the latest sign that American credit markets are healing after the worst downturn in a generation, according to the lead front-page article in today's edition of The Wall Street Journal by Matt Wirz and Serena Ng.

"The prices on a representative slice of the subprime bond market have doubled from 30 cents on the dollar at the low point of the crisis to roughly 60 cents today," the article said, adding that "Their comeback underscores how investors have regained the courage to take on more risk as the economy recovers, pushing up the prices of a broad swath of riskier assets, from commodities to junk bonds to stocks."

The attraction of bonds underpinned by subprime home mortgages is fat yields, at a time when the Federal Reserve has pushed interest rates on the safest investments to among the lowest levels in history, the article noted.

"In addition to subprime bonds," the article continued, "conservative investors are re-entering the market for other so-called nonagency bonds, which means they aren't backed by Fannie Mae or Freddie Mac. These securities yielded close to 20% during the downturn, and are now fetching between 5% and 7% - still well above roughly 3.5% yields on U.S government bonds and 4% on high-quality corporate bonds."

"The willingness to take on risk is helping ordinary borrowers, too, by leading banks to make more nontraditional loans, such as jumbo mortgages, and to charge lower interest rates for them. Since the worst of the crisis," the article said, "the extra amount that borrowers have had to pay for these loans has fallen by half, with interest rates for jumbo loans now roughly 5.5% compared to 5% for 30-year conforming loans. The extra amount over standard conforming loans that a person would have to pay for a jumbo has fallen from 1.3 percentage points to a bit over 0.5 points."

"Equally notable, investors say, is that prices on these risky bonds have stabilized in recent months, giving conservative buyers the confidence to step in," the article said, adding that "the demand is so strong for these securities that even the Federal Reserve is taking advantage, announcing Wednesday that it will sell off billions of dollars worth of subprime mortgage bonds it took on as part of its bailout of American International Group Inc. in 2008."

Subprime bonds are securities backed by hundreds or thousands of loans to homeowners with spotty credit profiles.

The sellers are often hedge funds and other investors who scooped up the beaten-down debt and want to lock in gains after a two-year rally. Current buyers say banks are now willing to lend them money so they can buy more of these bonds, a sign both of banks' increasing willingness to lend and the change in view among investors about the safety of nonagency bonds.

Mortgage bonds still have significant risks. The article said that "while the U.S. housing market is expected to eventually recover, protracted foreclosure battles and the still-weak economy could mean that cash flows that investors expect the bonds to receive could take longer than expected to materialize. Analysts generally view their downside risk as limited at the bonds' current prices, even though delinquency and default rates among the loans backing them remain high."

AIG offered to buy back a pool of bonds that the Federal Reserve had taken off its hands during the crisis. AIG's $15.7 billion offer for the bonds, which have a face value of $30 billion, spurred other investors to consider making offers. Citing "improved conditions" in the market and "a high level of interest by investors," the Fed on Wednesday rejected AIG's offer and said it would begin selling off these mortgage holdings, letting investors bid for pools of bonds and individual securities so the central bank can maximize its profits.