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Rise in Treasury yields drives CMBS to post-crisis tights

Westin New York Times Square 230x150
By David Bell
22 Jan 2018

The first CMBS conduit deal was priced on Friday, with spreads at the top of the capital structure falling to post-crisis tight levels, reflecting the rise in the 10 year Treasury rate and the move in swap spreads.

The super senior triple-A class of Deutsche Bank, Citi and JP Morgan’s $1.16bn Benchmark 2018-B1 deal was priced at 66bp over swaps —21bp tighter than the last conduit deal, UBSCM 2017-C7, which was priced in late December. Given the increase in the Treasury rate, however, the yield was only 2bp lower, said Wells Fargo analysts. 

The 10 year Treasury yield was around 15bp lower when the last conduit deal was priced in December, said S&P Global.

The analysts said that the spread levels of the A-S, AA- and A- tranches were also all priced at post-crisis tight levels. But spreads also contracted further down the capital structure. The riskiest BBB- rated notes were priced at 305bp over swaps, 105bp tighter than the last similarly rated bonds were priced on December 12, according to Wells Fargo data.

As well as the rising Treasury rate, the lack of new conduit paper since that deal has meant secondary spreads have ground steadily tighter.

Fixed income analyst Scott Buchta at Brean Capital wrote in a client note that strong secondary market bids drove triple-B spreads to tighten by as much as 20bp-30bp last week, even as the market’s synthetic CMBX indices dropped off recent tight levels.

This was likely down to technical factors, he told GlobalCapital, with hedge funds or dealers selling CMBX exposures while cash bonds remain very well bid by retail investors.

Four single borrower deals, three floating rate and one fixed rate, were priced last week, and two others are in the pipeline — THPT 2018-THL and IHPT-2018-STAY, both backed by hotel properties. 

By David Bell
22 Jan 2018