As ABS spreads approach their underlying benchmarks, and value becomes increasingly scarce, sell-side researchers have diverging views on relative value, and what strategy investors should employ. For the first time since mid-2002, some banks have begun recommending a neutral stance and many prefer off-the-run names and sectors.

Last week Lehman Brothers shifted its bias for ABS to neutral from overweight, as spreads have tightened to the point of being overvalued, the firm said. Despite what it calls "powerful demand technicals" in the ABS market, Lehman believes that ABS spreads "are close to a spread floor," and sees little upside in the current market, with a couple notable exceptions.

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