Strong demand led to tight pricing on newly issued CMBS securities amid the marketing of $10 billion of bonds. Wells Fargo, Morgan Stanley, Bank of America and NCB priced the $1-billion conduit issue on June 14, with the super-senior, long-term AAA-rated bonds pricing at 64 basis points (bp) over 10-year swaps, 1 bp better than expected. Spreads on the triple-B-minus tranche priced at 260 bp, 20 bp better than expected. That was well inside other pandemic-era pricing and among the tightest since the global financial crisis.
“First and foremost, this is being driven by improving fundamentals,” said one CMBS investor. “Then there is a general lack of supply. Yields are low everywhere, and there is very little secondary activity in recent vintages. There is only one way spreads can go in that environment and that’s tighter.”
Borrowers care about CMBS securities prices because the loan spreads found in CMBS conduit loan Term Sheets are derived from CMBS securities prices. Tightening CMBS securities prices will quickly find their way into lower loan spreads in Term Sheets. If the trend continues, borrowers should see a 5- to 10 bp reduction in new CMBS conduit loan offers. As a refresher, loan interest rates for 10-year CMBS conduit loans are set by adding the 10-year Swap rate and the loan spread found on your CMBS conduit loan Term Sheet. For example, if the loan spread is 250 bp (2.50%) and the 10-year Swap rate is 1.50%, the loan rate is 2.50% plus 1.50%, or 4.00%. For current CMBS conduit loan spreads and interest rates, click here.