Favors new-issue floating-rate CMBS over seasoned deals due to the adverse selection phenomenon and concerns over the refinanceability of remaining loans that have exhausted their extension options, particularly if rates rise and real estate fundamentals soften further. Triple-A floaters offer attractive spread pickups to competing sectors. Views the fixed-rate CMBS credit curve (AAA/BBB) as not sufficiently rewarding investors for venturing out the curve into lower rated investment-grade credits. Those searching for yield should focus on certain CMBS IO sectors, for which the optionality is valued at worst-case scenarios. In particular, seasoned WAC IO with high levels of yield-maintenance represents an attractive yield play.
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