RBSGC believes that nonagency hybrid ARM subordinates are a smart way to take advantage of fast prepayment speeds in that sector. With a lock-out similar to traditional nonagency senior/subordinates, residential credit risk investors can expect recent transactions to de-lever rapidly as one-month speeds have ranged from 50 to 80 CPR inside of twelve months seasoning. Credit performance in the hybrid sector has rivaled performance in the jumbo fixed-rate sector and orgininal credit enhancement levels are similar. In HELs, double-A floater spreads are at the narrow end of recent history. The spread advantage to step down to single-A is generous at this time as that pocket of the ABS credit market has not narrowed nearly as much as double-As.
