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.