Buysiders are betting that bonds eligible for financing under the Federal Reserve's Term Asset-Backed Securities Loan Facility will soon be worth no more than non-qualifying issues.

In some ways, the prophecy has been self fulfilling. Holders of TALF-eligible securities began preparing for the shift over the past week by dumping billions of dollars of their investments onto the secondary market - shrinking a pricing advantage that those products have long held over non-qualifying transactions.

To be sure, secondary-market prices for asset-backed bonds in general have risen since the beginning of this year and market players expect the pattern to continue in the weeks ahead. But the gains are likely to come slower for TALF deals, as was the case this week.

Investors still hold TALF bonds in high regard, and sources describe the bid for the issues as strong. With the Fed set to hand out its last monthly round of buyer financing in March, however, the thought is that there will be little reason for those securities to be worth more than non-qualifying ones going forward.

TALF has helped bring back prices on asset-backed bonds from their 2009 lows by supplying low-cost Fed leverage that helps boost buyer yields.

Many TALF-bond investors chose not to borrow from the central bank for issues carried out in recent months though, and they're the ones now believed to be driving the secondary-market flow.

The hope is to cash out before TALF expires, at which point the lack of financing for future buyers would likely cause the value of their holdings to converge with the market average. "Those bonds are trading at levels tight to where a market with no TALF would have them trade," one trader said. "You don't want to be a seller of that stuff post the TALF subscription date in March."

Another trader estimated that $800 million of TALF bonds crossed his desk on Friday and Monday, and that the number climbed even higher as this week progressed.

In one of the trades, a batch of TALF-eligible auto-loan bonds that Nissan priced last March at an initial average life of 3.1 years changed hands on Jan. 8 at a spread of 33 bp. That was about seven bp tighter than comparable non-TALF paper was trading at the time. Since then, similar TALF issues have come in another two to five bp while non-qualifying issues have seen about 10 bp of tightening. In some cases, that has already been enough to erase the pricing differential between the two transaction types.

The gap for credit-card paper also narrowed last week from what had been an average of 5-7 bp, as spreads on TALF and non-TALF issues came in 10-20 bp. Three-year TALF paper from J.P. Morgan is now circulating at 35 bp over Libor, while Bank of America issues are fetching a 40 bp spread.

Across asset classes, spreads are hundreds of basis points tighter than they were when TALF took effect last March. Some industry participants are pointing to those gains to discount the notion that sellers are trying to get out before eligible securities lose their pricing advantage. Instead, one trader said investors might be unloading inventory to raise money that could be put to work in a separate TALF component for commercial mortgage bonds or in residential-MBS funds set up through the U.S. Treasury Department's Public-Private Investment Program.

In any event, trading is likely to remain heavy. "There's a lot of cash out there, and people who will be forced [into the market]," another trader said.