Spreads on the highest rated CMBS are at their tightest since the end of 2000. At the end of Feb., Merrill turned bearish at these same levels and recommended selling CMBS but this time it is different. The war with Iraq has to date been successful, the market is at the end of a big supply wave rather than facing one, spreads on most other competing products are tighter than two months ago. While Merrill does not view the sector as cheap, believes the risk reward is reasonably well balanced. In general, the trading range for triple-As has been redefined and is now a few bp lower than it had been.
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