Securities backed by mortgages, a large source of the $1,000bn of writedowns for the financial system, have rallied strongly in recent weeks amid optimism that economic pain will not be as bad as feared and as a wave of investors holding cash have sought out higher yields.

The likely kick-off in October of US government-backed investment funds could inject $40bn of buying power into the market for distressed mortgage-backed securities, and this has also helped to boost prices.