Spreads on recent issue CMBS widened further on Monday, August 8, in the wake of Standard & Poor’s decision on Friday, August 5, to lower its triple-A ratings on U.S. Treasuries. Spreads recovered as the week progressed, but benchmark spreads on recent issue AAA-rated senior paper were still 25-30 basis points (bp) wider on August 11 compared with a week ago. And that was after spreads widened by a similar amount the prior week.
The bottom line? Secondary spreads on 10-year senior paper from so-called CMBS 2.0 transactions are wider than ever. Amid the wider pricing, Deutsche Bank and UBS priced a $1.7-billion CMBS offering on August 11, and its 10-year triple-A bonds priced at 200 bp over swaps. This compares with 170 bp over swaps for the Wells Fargo/RBS CMBS transaction that priced on July 21, 2011.
With 10-year triple-A bonds at 200 bp over swaps, the “breakeven” spread on a typical 10-year, fixed-rate conduit loan is currently around 310 bp, and quotes to borrowers are now in the 340 bp to 350 bp area. The absolute rate charged to borrowers hasn’t widened as much, as the decline in 10-year Treasury rates and corresponding swap rates (the 10-year swap rate approximates 2.40%) has mitigated the impact of the spread widening, leaving the all-in interest rate to the borrower at around 6%.
The following chart shows the widening trend in spreads for recent CMBS transactions:
| Deal | Issue Date | AAA Spread (10-yr) |
|---|---|---|
| JPMorgan 2011-C4 | 5/25/11 | 110 |
| WFRBS 2011-C3 | 5/26/11 | 115 |
| Morgan Stanley 2011-C3 | 6/9/11 | 147 |
| DBUBS 2011-LC2 | 6/17/11 | 140 |
| WFRBS 2011-C4 | 7/21/11 | 170 |
| DBUBS 2011-LC3 | 8/11/11 | 200 |
