The government's moves have been a key driver in the month-long CMBS credit rally, although it has also been sustained beyond technical factors such as the existence of Public-Private Investment Program and TALF (Term ABS Loan Facility), Barclays Capital analysts said.
The rally, analysts said, has been broad-based, across debt and equity markets and also supported by some signs of improved economic data, such as the recent employment report.
The biggest rally has been in TALF-eligible sectors, and analysts said they expect strong demand for the next subscription date set for Aug. 20.
“We believe the answer to the sustainability question depends upon the place in the capital structure,” Barclays analysts said.
For most senior triple-As, analysts said that the current spreads still more than compensate solely for cumulative loss expectations. They attribute the bulk of the rally to lower risk premiums. Analysts said they believe this can persist in the short term.
For subordinate tranches, Barclays analysts said they remained skeptical about the recent rally, given forecasts of a significant pickup in the pace of credit deterioration in 2H09.
“Overall, we believe it is premature to think that low risk premiums are here to stay indefinitely; we still have systemic concerns regarding the ability to refinance recent vintage CMBS loans,” analysts said. “This, combined with policy uncertainty, could easily lead to another risk flare.”