CMBS spreads for the benchmark AAA-rated super senior CMBS bonds remained range bound in the vicinity of 130 basis points (bp) over swaps. A recent deal priced below that level and a new deal in the market provided price guidance at the 130 bp level. On Friday, April 22, Morgan Stanley and Bank of America priced AAA-rated super senior CMBS bonds at 125 bp over swaps, the lowest level since November 2015. This follows a pattern of tighter spreads in March and April that began with a CMBS offering led by Wells Fargo that priced on March 18 at 129 bp over swaps, an astounding 44 bp tighter than the peak level of 173 bp reached on March 3. Recent trends in benchmark AAA-rated super senior CMBS are shown in the chart below.
Market participants chalked up the better pricing to a number of factors, foremost a lack of new offerings to satisfy investor demand for CMBS. Volatility surrounding the run-up of spreads since the beginning of the year has stifled new loan originations, reducing inventory to be securitized.
“The rapid decline in spreads has resulted in a reduction in loan spreads to borrowers of approximately 50 bp, to a range of 300-325 from 350-375 prevalent just a few weeks ago,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “With 10-year Swap and Treasury rates well below 2%, all-in interest rates are around 5%, a level at which loan activity should pick up.”