Interest rates for CMBS conduit loans have fallen to historic lows as the death toll from China’s coronavirus outbreak continues to rise, rattling investors worried about the financial impact on the world’s second-largest economy. In the United States, equity prices have gyrated, while Treasury yields have fallen 30 basis points (bp).
The 10-year swap rate, the benchmark for setting CMBS conduit loan interest rates, has fallen 39 bp in response to the outbreak. The 10-year swap rate began 2020 at 1.88% and is now at 1.49% as of February 3. Meanwhile, CMBS securities pricing has also tightened since the beginning of 2020. The AAA-rated CMBS spreads have fallen from Swaps plus 90-100 bp to Swaps plus 80-90 bp. Borrowers care about CMBS securities prices because the loan spreads found in CMBS conduit loan Term Sheets are derived from CMBS securities prices. Falling CMBS spreads translate into lower loan Term Sheet spreads. Usually CMBS spreads rise when the swap rate falls, so we are in a “goldilocks” scenario right now.
As a result, CMBS conduit loan rates are in the high 3% area for a low-leverage 10-year term CMBS conduit loan. Full leverage CMBS loans are currently in the 4% area.