While spreads in the real-estate ABS sector near historical wide levels, the out-of-whack supply/demand dynamics are reverting to the norm, which has analysts predicting 15 to 20 basis point of tightening in triple-As by the end of the first quarter 2003.

While all agree that home equity and real estate ABS has become cheap, the Street is mixed as to where the best opportunities currently present themselves. Most see strong demand for triple-A rated bonds at current levels, but there are conflicting views on down-in-credit subordinates, which have widened roughly 200 basis points versus Libor in the second half of the year for triple-B rated new-issue supply.

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