It is time to buy triple-Bs, said analysts from Salomon Smith Barney after conducting a regression analysis. They said that triple-B CMBS spreads have widened significantly over the past couple of weeks. In a recent report, researchers examined whether this steepening in the credit curve makes sense considering the recent rally in corporate bonds and alternative credit investments.
Analysts thought that considering the strength of the corporate sector in the face of a CMBS and ABS sell-off, some statistical analysis relating to the relationship between the different spread products and CMBS might offer some insight into current CMBS levels, which at first glance seem relatively cheap. They looked at new-issuance ten-year triple-B industrial index as a spread predictor and were surprised to learn that it was not really a very strong prediction factor for CMBS triple-B spreads. However, after a thorough analysis, researchers discovered that three different equations could offer fairly accurate triple-B spread predictions. But since these three different equations with similarly high predictability showed that CMBS spreads are 1.5 to 5 basis points rich is evidence that spread regression is not really a perfect science.