Interest rates for CMBS conduit loans remain at historic lows. After the 10-year swap rate hit a recent low of 1.33% on September 3, the rate began to move upward, creating a concern that the window for record-low CMBS conduit loan rates may quickly close. The 10-year swap rose to 1.79% on September 13, but steadily fell during the past four weeks to 1.50% and now is in a trading range of 1.45-1.55%. This is providing a runway for ValueXpress to continue to process and close CMBS conduit loans at historic lows.
CMBS bond prices remain stable as well, which is an important ingredient for low interest rates. Recall that the interest rate on a 10-year fixed-rate CMBS conduit loan consists of the 10-year swap rate plus the loan spread. The loan spread is derived from CMBS bond prices. In particular, the spreads and trends on AAA-rated CMBS securities are indicative of loan spreads that are being quoted to borrowers. AAA-rated CMBS have traded with a spread between swaps plus 90-100 basis points (bp) for two months, with the latest AAA-rated CMBS pricing at swaps plus 94 bp on September 30.
What this means is interest rates for CMBS conduit loans remain relatively stable at historic lows in the range of 3.50%-4.00%. Loan spreads to borrowers range from 200 bp for low leverage transactions (resulting in a 10-year fixed rate of 3.50% today – 2.00% spread plus 1.50% swap = 3.50% interest rate) and 250 bp for high leverage transactions (resulting in a 10-year fixed rate of 3.50% today – 2.50% spread plus 1.50% swap = 4.00% interest rate).