With most areas of the CMBS market now fully squeezed of any value, investors are looking away from the triple-As, IO, and mezz classes that treated them well during the first quarter. The new "value" sector, offering both yield and cheapness, is down the credit spectrum into double-Bs. There has been ancillary mention of these credits for a few weeks, but with IOs being wrung out and limited upside in higher credits, more attention has shifted into these otherwise forgotten tranches.

Merrill Lynch's Roger Lehman makes a case that lower-rated classes should tighten more than higher ones since "subordinate tranches contain a levered exposure to the same credit fundamentals as the senior classes." He likes BBs versus the mezzanine and IO credits at this point, noting that BB spreads have been stable since their wides of 1998, despite the volatility in other classes, mainly due to lack of market participation in the sector.

Additionally, double-Bs have lagged the tightening seen in high-yield corporates. The latter market is 45 basis points tighter than pre-9/11 levels, while BB' CMBS have only richened five basis points, leaving the basis at the widest it has been in two years. While crossover buying from the BB corporate market has yet to materialize (as has occurred in mezzanine and triple-A credits), any participation in the sub-investment grade sector would be reflected in a swift tightening of those spreads.

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