The spreads on the subordinate tranches of RMBS might have narrowed from the wider levels achieved in the final months of 2005, but the outlook for the performance of the residential housing market is not necessarily better - or worse - than before.

According to Bear Stearns analyst Gyan Sinha, it would be "hard to point out" any prior year in which exuberant investors, unleashed from year-end balance sheet restrictions, tightened spreads by piling into structured finance bonds, a phenomenon often seen in the equities market. "The idea that investors park money on the sidelines waiting to deploy it at the turn of the year is not new, but the effect has been relatively muted in most years," Sinha wrote last week, "A confluence of events appears to have changed history in this regard."

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