In September, the Royal Bank of Scotland[stock RBS][/stock] recommended that investors “take some chips off the table,” thinking that commercial mortgage-backed securities rallied too far too fast

After witnessing the increase in total CMBS returns in September, driven, it says, by a frantic search for yield, folks at RBS are thinking again.

“This was clearly premature as a combination of global central bank stimulus compressing yields and a shortage of higher quality assets triggered an investor feeding frenzy driving valuations through many historical measures of fair value,” RBS’ sales and trading desk says.

Total returns increased by an average of 1.9% with longer duration and higher beta bonds outperforming, they say. The only index to realize a monthly decline was the VIX at -1.7%, with the other 18 indices gaining anywhere from 0.1% (AAA.3) to 4.2% (AM.4). At the same time, volatility increased an average of 3.5%, ranging from a decrease of 1.7% (VIX) to an increase of 7% (AJ.4), they add.

“While a host of daunting macroeconomic and geopolitical risks continue to lurk in the background, who are we to stand in the way of artificially engineered markets where fundamentals potentially no longer matter?” RBS asks.

Sixty-eight percent of CMBS loans that reached their balloon date in September paid off, creating the highest pay-off rate in four years. And the number of CMBS loans in special servicing fell significantly over the past two years

RBS reveals that in this “bizzaro market we are inclined to hold our nose and reluctantly recommend long positions over the short term in higher beta and longer duration positions.”

Barring a significant macro shock to the system, it believes these assets will continue to outperform in the near term as market participants continue their unquenchable search for short term yield.