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Triple-A CMBS on a Hot Streak

NEW YORK CITY-Spreads on top-rated securities have narrowed by up to 150 basis points lately, Trepp says in a new report.

By Paul Bubny | Updated on August 04, 2009

NEW YORK CITY-Spreads on AAA-rated CMBS have narrowed by 100 to 150 basis points as a rally in these securities continues for the second straight month, particularly in five-year triple-A paper, according to a new report from Trepp. Predictably, the spreads have narrowed more on loans backed by stronger collateral, Trepp says. The narrowing has occurred even amid what the CMBS information provider calls “continued negative headlines.”

Tom Fink, SVP at Trepp, tells GlobeSt.com that “the pricing is tightening up because people see that there’s an opportunity for doing a profitable trade by buying the bonds and then securing financing through the Federal Reserve’s TALF loan facility. That should provide a fairly stable underpinning for the five-year spread at least through the end of the year, which is how long the program is currently scheduled to last. If at the end of that, people start to see a good tone in the market and the performance of commercial real estate stops deteriorating, it could become permanent.”

Still to come are deals on new CMBS through TALF, but Fink says “the market’s fully expecting that there will be new issue on the TALF program between now and the end of the year. You have a number of large institutions that have talked to the Fed and they expect to pursue deals with the Fed. There’s plenty of folks down in Washington who are suggesting that it be continued a lot longer.”

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