Despite significant tightening over last few weeks, many banks still see relative value in subordinate and mezzanine home equity ABS.

According to Morgan Stanley, secondary market triple-B home equity bonds tightened as much as 70 basis points during the first week of November. That said, investors could pick up roughly 400 basis points moving from triple-B to triple-B minus, versus the 25- range gap seen last year. Morgan researchers also like the double-A to single-A trade, which offers about 100 basis point in spread, but does not see incremental benefit moving to single-A minus, which only pays 25 basis points over single-A.

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