See value in debt tranches of SF CDOs, building on our positive view of subordinate ABS collateral and an improved risk/return profile for SF CDOs. Equity investors can currently find the best value/arbitrage opportunity in CLOs, which have for some time maintained the cheapest cost of equity funding (AAA and BBB liabilities currently pricing 8-12bps and 40-90bps tighter, respectively, versus other cash CDO sectors). In addition, rising leveraged loan spreads (aprox 22bps since January) have increased increased excess spread.

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