John Paulson, the hedge-fund titan who earned superstar status after earning billions by correctly predicting the collapse of the mortgage market, slipped slightly in April betting Wall Street firms such as Bear Stearns would collapse and default on its debt.

One Paulson fund that invests in things like mergers and bankruptcies fell 3.4 percent last month; a second dropped closer to 2 percent. The funds are up for the year, but the declines come when most hedge funds are expected to post positive monthly returns.

Paulson was using arcane instruments known as credit default swaps to bet companies like Bear would default on their debt. Instead, JPMorganChase in mid-March agreed to buy Bear and support its obligations. Spreads on these bets widened – in some cases by several hundred basis points – as confidence in financial stocks returned.