The government is a month into selling its AIG holdings. Despite the bids for the auctions being pre-announced, the sales are causing a commotion in the RMBS secondary market, and the reaction from securitization players is not entirely positive.

Yes the series of sales is helping price discovery, but it is also crowding out non-agency securities. The Alt-A and non-subprime portions of the portfolio have achieved better pricing, clearly demonstrating that RMBS investors remain averse to risk.

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