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JPMorgan moves to 'overweight' risky subprime RMBS
Mon Aug 24, 2009 2:58pm EDT

NEW YORK, Aug 24 (Reuters) - JPMorgan Securities gave securities backed by the riskiest mortgage assets a thumbs up on Monday and moved to an 'overweight' on subprime securities amid signs the ailing economy and housing market are turning the corner.
"Overwhelmingly, positive supply-demand conditions and the growing body of evidence that economic recovery and improvement in housing is underway," led to the bullish move, said Chris Flanagan, JPMorgan analyst in a report...............

The investment firm turned 'overweight' on the securities that once wreaked havoc on investors and led to billions of dollars in writedowns at banks for the second time in nine months............

The news led to a rally in both cash subprime mortgage securities and those tied to the ABX derivatives index.

While volatility will no doubt be part of the landscape going forward, the analyst said the trend to lower yields and generalized yield convergence is expected to continue.

Recent selloffs have provided attractive entry points for investors.
"Risky asset yields continue to decline from crisis levels as economic recovery takes hold.
ABX and subprime will be last responders, but they will eventually follow suit. We continue to look for yield declines of 300 to 600 basis points for assets currently yielding 10 percent and above," said Flanagan.
http://www.reuters.com/article/bondsNews...