Barclays Capital has a cautious outlook for both residential and commercial mortgage credit, its researchers indicated in their global outlook report Thursday.

The report indicates that the most encouraging news in the sector might be the regulatory plans to lay off in the private market some credit risk in agency MBS.

When asked during a press conference Thursday about what the extent of the appetite in the private market for this risk might be, Ajay Radjadhyaksha, head of U.S. fixed income strategy, indicated he believes it would be attractive to market participants such as insurance companies and hedge funds.

He also said that agency collateral that is currently being originated should be attractive because it “is very, very clean.”

Radjadhyaksha said he does believe that there are in the private-label RMBS market investors who “will never come back to it.” He estimated that of the $100 billion to $150 billion per year paying down through writedowns or prepayments in the nonagency RMBS market, about 10-15% will return.

But he said he believes as long as regulators keep plans for the private market risk tranche of agency MBS as “simple as possible” that “the market will be there.”

For non-agency legacy RMBS, Barclays recommended in its report waiting on the sidelines for “a better entry point is 2012.”

The report indicates analysts are also cautious when it comes to commercial MBS. They recommend “staying in the safest tranches, avoiding leverage, and adding selectively during the expected periods of spread widening.”

For markets in general, Barclays advised “a cautious step forward for investors.”

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