ValueXpress tracks the pricing of CMBS securities because it directly correlates to the interest rate borrowers receive for a CMBS conduit loan. Our insight into the CMBS market ensures that our borrowers receive the lowest possible interest rate on their loan. ValueXpress has been tracking CMBS securities pricing since 2007.
In particular, the market for long-term, super-senior AAA-rated CMBS highly correlates to borrower interest rates for CMBS conduit loans, so we focus on price trends for that tranche of CMBS. New AAA-rated CMBS trade based on a spread over the 10-year Swap rate. For 2018, the range of pricing was 66 basis points (bp) over the Swap rate (S+66) recorded in January 2018 to a high of 112 bp (S+112) in December 2018. From March until September 2018, the range varied from roughly S+80 to S+90.
It’s important to understand that lower AAA-rated CMBS pricing is better for CMBS borrowers. Although not exact, borrowers can expect the loan spread in new CMBS loan applications to decline one basis point for each point of decline in AAA-rated CMBS prices.
As noted, AAA-rated CMBS pricing hit a 2018 high in December 2018 of S+112. Today, Morgan Stanley priced the first CMBS conduit issue in 2019, pricing the AAA-rated CMBS at S+94. This is great news for borrowers in that loan spreads on new applications should fall roughly 18 bp (112 minus 94) for new CMBS loan applications.