Go long junior mezz and short equity, says Morgan Stanley

That is an interesting trade idea. But the spread dispersion could easily turn out to break the deal idea. The impact of correlation vs spread dispersion can be seen on the senior tranches, ( roughly i.e. increase the spread dispersion of the portfolio (keeping average spread constant) and the correlation goes up). And the equity tranche is similarly sensitive to small spread dispersion effects. Thus it might be interesting to consider to set a junior mezz tranche versus a more senior mezz tranche and try to catch the expected correlation move on them, rather than playing the equity versus a jun mezz. You will get the correlation effect more isolated. I see spread dispersion ( especially in copula models) one of the main drivers for problems in pricing when correlation is high.