The 2006 upgrade to downgrade ratio has been the most favorable in years, Barclays Capital analysts said. However, they caution that investors should pay heed to the overall credit picture and be ready for the potential credit-related issues that might creep up in 2007.

"Despite the benign fundamentals outlook, we expect performance for European ABS in 2007 to be a bit worse than in 2006," said Hans Vrensen, head of the Barclays European securitization research team. "However, we expect it still to be good relative to historical averages. This follows on from moderate increases in delinquencies and losses for select sectors (U.K. RMBS and credit cards) in 2006. As a consequence, we expect credit ratings to remain stable overall as usual, but less frequent upgrades during 2007 than in the recent past."

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