The commercial mortgage-backed securities secondary market chalked up a ruddy USD1 billion of bid lists every week during the August new issue doldrums. The burgeoning derivatives market has been fueling a large chunk of the flow as more investors are taking positions via credit-default swaps and the synthetic CMBX index.
New investors are active in basis trades. A report from RBS Greenwich Capital explains that BBB minus cash bonds were recently being traded at swaps plus 110 while single-name, BBB minus credit-default swaps are in the area of 90-100 basis points. "One way to express these credit concerns and mitigate the negative carry issue is to buy protection via BBB minus CMBS," said Lisa Pendergast, managing director.
