Navigating the non-agency RMBS market is not an easy task given that the market has seen little primary activity in 2011 and lots of volatility on housing stats.

The Standard & Poor's/Case-Shiller 20-city September home price index fell 0.6% on a not-seasonally adjusted basis, the first drop since March.

On a year-over-year basis, the index was down 3.6% in September. The 20-city home price index remains down 31.3% from the July 2006 peak. The national quarterly index also dropped 3.9% in September, an improvement over the 5.8% decline posted in the second quarter.

"We expect October to show another seasonal decline as prices and sales are likely to remain weak during the winter months," S&P analysts said.

By contrast, the Federal Housing Finance Agency reported that U.S. home prices rose 0.7% in both September and the third quarter on a notseasonaly adjusted basis.

According to Jesse Litvak, a managing director at Jefferies & Co., below-investment-grade non-agency paper is trading 10 to 20 basis points off from the highs in March 2011.

In both 2010 and 2011, January and February saw prices move up, and heading into the year end more accounts are trying to buy versus sell, he said.

"In the non-agency space, market players are still running very harsh scenarios on bonds and giving very little credit to any risk on trade," Litvak said. "Yields are still in the 8% to 10% range, and in a world that continues to have tape bombs left and right, I feel like the optionality that exists in non-agency space is pretty compelling."

Litvak believes that more buyers may be looking at below-investmentgrade non-agency paper, which could see pricing steadily move higher into 2012. This is despite the housing sector still facing an uphill battle when compared to other securitization asset classes. The asset class has also been bolstered by the recent Federal Reserve lowering of the interest rate on the dollar swaps.

On the CMBS front, the recent widening trend of past weeks made a reversal given strong post-Thanksgiving sales. According to S&P, sales registered at 6% to 9% above last year. Best Buy, Macy's, and Wal-Mart had strong results based on preliminary data.

Loans on retail properties account for about one-third of outstanding CMBS collateral and nearly half of 2010-2011 vintage transactions. JCPenney, Sears and Macy's are the top 3 CMBS tenant exposures, according to CMBS data provider Trepp.

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