On April 15, spreads on senior CMBS fell 25-30 basis points (bp) as an ongoing rally in CMBS spreads and prices accelerated. CMBS prices (as measured by the GSMS 2007-GG10 super senior A4 bond class, which is considered the industry benchmark) tightened to 295 bp over swaps from 325 bp. The dollar price on the GG-10 A4 bond class, which once traded at a low of 50 cents on the dollar during the height of the credit crisis, is now trading at about 98 cents on the dollar. At that level, the GG-10 A4 bond provides a yield of 6.3%. Less than one month ago the GG-10 A4 bond was trading at more than 400 bp over swaps.
Undeniably, investors really, really like CMBS right now. It has been almost four weeks since the Term Asset-Backed Securities Loan Facility (TALF) financing program expired for existing CMBS. At the time, no one was expecting a CMBS sell-off, but many CMBS pros thought we might see a period of limited gains once TALF financing expired. Instead, the market has seen a powerful CMBS rally.
“The continued improvement in CMBS prices and corresponding reduction in CMBS yields bode well for recovery for new CMBS conduit loan originations,” said Michael D. Sneden, Executive Vice President of ValueXpress. “There is clearly demand for CMBS bonds and no supply, which is pushing up prices on existing CMBS and helped drive the success of the recent new issue CMBS by RBS,” Sneden said. “Eventually, all these positive factors will accelerate new CMBS conduit origination, but the pace to date for new CMBS conduit loan origination has been slow.”