The commercial mortgage-backed securities market saw more than $1.5 billion of new bid lists last week comprised mainly of shorter-duration paper and interest-only bonds. The bidlists were unusual given their size and the relatively new vintage of the paper, said Lisa Pendergast, managing director at RBS Greenwich Capital.
Spreads on five-year, locked-out par bonds are now three basis points tighter and are being traded at swaps plus 10, Pendergast said. "Historically tight spreads did bring out sellers last week and those who did not sell to book profits did so for duration purposes," she said. About $570 million of three- to five-year triple-A bonds changed hands last week.
The bonds were quickly absorbed due to the absence of new issuance, investors said. There was only one new issue last week, a $1.5 billion offering from Morgan Stanley, MSC 05-IQ9. There are two deals set for this week that total about $4.4 billion. Year-to-date issuance totals $18.3 billion, which is nearly double to the same period in 2004. Pendergast expects total first quarter supply will exceed $30 billion.
Meanwhile, with IO levels tightening on new deals, sellers shopped more than $500 million of IO bidlists during the week, including one totaling $127 million from a recent GE Capital deal. "This bid list was comprised of recently issued support IOs and was sold as much as 150 basis points tighter than where the bonds initially were priced," Pendergast said. Investors like IOs because of the improved CMBS credit environment, where there are lower delinquencies and loss severities and significant extension potential.