9.20.13: CMBS Spreads Tighten Slightly as Swap Rate Falls

Spreads on new CMBS issues narrowed only slightly as financial markets rallied in response to the Federal Reserve’s surprise announcement that it would keep its massive bond-buying program running full-tilt. However, CMBS conduit loan borrowers still caught a break as the 10-year Swap Index used to set CMBS loan rates fell to 2.89% from 3.04% on Thursday.

New CMBS loan applications should see a 5-basis-point (bp) decrease in spread based on the results of five CMBS offerings during the week of September 16 totaling $3.8 billion. The most recent deal, a $1.1-billion offering by Ladder Capital, Deutsche Bank and Natixis, is expected to price on Monday. Its long-term, super-senior bonds were being marketed with a projected spread of 103 bp over swaps. Equivalent benchmark bonds in a $1.1-billion offering led by Citigroup and Goldman Sachs priced at the same level on Wednesday, just before the Fed announcement. Comparable bonds in a $1-billion deal led by Wells Fargo and RBS priced Monday at 105 bp. That matched the previous conduit issue, which priced August 14 (GSMS 2013-GCJ14).

Investors generally cheered the Fed’s decision to postpone any tapering of its long-running effort to hold down interest rates by scooping up $85 billion per month of Treasury and mortgage-backed bonds. Yet there was little movement in new-issue spreads. That’s partly due to lingering buy-side concerns about taking on long-term risk, since the Fed might still change course by yearend, possibly causing interest rates to rise.

“On one hand, I am glad the market was able to absorb all the new supply and spreads narrowed a bit, good news for new CMBS loan origination,” said Michael D. Sneden, Executive Vice President of ValueXpress. “But on the other hand, we received only $4.2-million from a $5.0-million CMBS order for bonds from the RBS deal as the AS Class that we purchased was 1.25x oversubscribed.”

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This entry was posted in CMBS, Commercial Mortgage Bonds, Commercial Mortgage-Backed Securities, Michael D. Sneden, News & Recent Closings, The Banker's Mortgage Conduit, Valuexpress and tagged , , , , , , . Bookmark the permalink.

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