In a report today, Barclays Capital analysts said RMBS would provide buying opportunities into 2012, but they warned that certain risks could eat into the potential upside.

The analysts characterized yields across the non-agency class as “reasonably attractive” right now. More specifically, they are sticking to the recommendation they've made since late 2010 of going long high-carry jumbo and alt-A fixed-rate super senior tranches.

The BarCap analysts also felt that subprime Pen/LCF AAA notes are a good bet for those with a longer-term horizon. “Although any forced selling might present better entry points in weaker credit, subprime is very likely to return more than prime over a 3-5 year period, even at today’s price levels,” the report said.

In addition, the analysts said that a new opportunity may be emerging in jumbo hybrid and option ARM super senior notes. The recommendation: buy on a 5%-10% dip in prices.

BarCap predicted that distressed housing supply will stay bloated through 2014, with real estate prices sliding this winter to settle at a level a few percentage points below March 2011.

The shop warned that near-term risk hinges on European bank selling, hedge fund redemptions and/or Basel 3-related distressed selling. “We estimate that the bulk of non-agency holdings in Europe is in run-down portfolios, but even a few distressed sales could push the market lower in this environment,” the analysts said, adding that subprime and alt-B are most vulnerable to this, as they account for a disproportionate amount of European holdings.

The fire-sale opportunities of 2009 are gone but BarCap analysts are sanguine about strong upside. Their model non-agency portfolio is 60-65% invested, with a big chunk in prime/alt-A fixed and smaller share in subprime Pen/LCF AAAs, at current price levels.

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