U.S. Securitized Debt May Rally in First Quarter, Lehman Says

Bonds backed by consumer debt and mortgages in the U.S. may rebound in the first quarter, following record-high yield premiums demanded by investors to own the securities this month, according to Lehman Brothers Holdings Inc. analysts.

The average spread investors demand to hold agency, mortgage-backed, asset-backed and commercial mortgage-backed securities rather than Treasuries widened to 139 basis points this month, 30 basis points higher than the previous peak in May 2000, Lehman analysts, led by New York-based Jack Malvey, wrote in a report today. A basis point is 0.01 percentage point.

Asset-backed and commercial mortgage-backed bonds have the widest spreads, wrote Malvey, whose team won the top position for the seventh straight year in Institutional Investor magazine's annual poll of the best U.S. bond analysts. Securities backed by credit cards and auto loans yield 71 basis points more than bonds of top-rated investment-grade companies, the widest since 1992, according to the report.

The investment-grade securitized assets ``look exceptionally cheap relative to their spread volatility and versus pure corporate credit risk,'' Malvey wrote. ``The securitized space looks increasingly ripe for an early `First Quarter Effect''' rally.

A survey by the New York-based securities firm shows 39 percent of the respondents expect global capital market conditions to begin to improve from the second quarter of next year, followed by 24 percent who don't expect it to happen until the second half. Respondents who expect the start of a recovery in January accounted for 15 percent of those surveyed, while 12 percent said it will be in 2009, when the U.S. real estate market hits the bottom.
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