Steady interest in structured commercial mortgages is at worst holding spreads unchanged, as is the case in triple-As, and at best causing significant tightening in mezzanine credits. The overwhelming reason comes from the diversity of collateral, protection from prepayments due to debt covenants, and credit protection from the general nature of the structure. Compared to other credit sectors, CMBS has been holding its own so far this year.

On a stand-alone basis the back-up in interest rates caused a 190 basis point decline in total returns for investment-grade paper, according to Lehman Brothers. But IG CMBS beat Treasuries by 45 basis points and single-A and AAs led comparable corporates by 61 and 36 basis points, respectively. Lower-rated credits, BBs for instance, lagged high-yield corporates by 367 basis points, though March was the second-best month for HY in excess returns. Versus agencies, gains in the five- and 10-year AAAs were 31 and 42 basis points, respectively, with similar - 32/47 basis point - gains versus RMBS.

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