At least half-smiles must be creeping across the faces of home equity ABS investors, as even the most notoriously bearish participants collectively shift their outlook on rising long-term interest rates. While Treasurys are expected to rally on anticipation of lower-than-expected long-term interest rates, adjustable-rate assets should also enjoy fewer defaults and delinquencies in that scenario, analysts say.

If the Federal Reserve is truly in the "eighth inning of a tightening cycle," with a ninth inning approaching in June, as Richard Fisher, head of the Dallas Federal Reserve Bank and FOMC voting member said the preceding week, the risk of mortgage loan default is substantially diminished, according to research released yesterday by Merrill Lynch.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.