Spreads on new CMBS issues narrowed only slightly as financial markets rallied in response to the Federal Reserve’s surprise announcement that it would keep its massive bond-buying program running full-tilt. However, CMBS conduit loan borrowers still caught a break as the 10-year Swap Index used to set CMBS loan rates fell to 2.89% from 3.04% on Thursday.
New CMBS loan applications should see a 5-basis-point (bp) decrease in spread based on the results of five CMBS offerings during the week of September 16 totaling $3.8 billion. The most recent deal, a $1.1-billion offering by Ladder Capital, Deutsche Bank and Natixis, is expected to price on Monday. Its long-term, super-senior bonds were being marketed with a projected spread of 103 bp over swaps. Equivalent benchmark bonds in a $1.1-billion offering led by Citigroup and Goldman Sachs priced at the same level on Wednesday, just before the Fed announcement. Comparable bonds in a $1-billion deal led by Wells Fargo and RBS priced Monday at 105 bp. That matched the previous conduit issue, which priced August 14 (GSMS 2013-GCJ14).
Investors generally cheered the Fed’s decision to postpone any tapering of its long-running effort to hold down interest rates by scooping up $85 billion per month of Treasury and mortgage-backed bonds. Yet there was little movement in new-issue spreads. That’s partly due to lingering buy-side concerns about taking on long-term risk, since the Fed might still change course by yearend, possibly causing interest rates to rise.
“On one hand, I am glad the market was able to absorb all the new supply and spreads narrowed a bit, good news for new CMBS loan origination,” said Michael D. Sneden, Executive Vice President of ValueXpress. “But on the other hand, we received only $4.2-million from a $5.0-million CMBS order for bonds from the RBS deal as the AS Class that we purchased was 1.25x oversubscribed.”