Starting from CMBS BBB up the rating structure to AAA, the price looks depressed. BBB securities are trading at 75% yield, implying the loss rate will be ~70%. Because most CMBS BBB securities has 5% cushion, 70% loss in BBB tranche will tranlate into 8.5% loss rate for all CMBS.
The current chg-off rate is 1.26% and the historic maximum charge-off rate is less than 5%. I do not expect the BBB securities will loss rate will close to 70%. Rating A securities have 10% cushion, more safe than BBB securities. My top choices in decending order are A, AA, and next BBB indice.
Sunday, February 15, 2009
CMBS looks like deal
Starting from CMBS BBB up the rating structure to AAA, the price looks depressed. BBB securities are trading at 75% yield, implying the loss rate will be ~70%. Because most CMBS BBB securities has 5% cushion, 70% loss in BBB tranche will tranlate into 8.5% loss rate for all CMBS.
The current chg-off rate is 1.26% and the historic maximum charge-off rate is less than 5%. I do not expect the BBB securities will loss rate will close to 70%. Rating A securities have 10% cushion, more safe than BBB securities. My top choices in decending order are A, AA, and next BBB indice.
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