CMBS conduit issuance is winding down. On Thursday, the $2.7 billion MSC 06-IQ12 priced and Friday the record sized JPMCC 06-LDP9, totaling $4.9 billion), was expected to price.
The 10-year benchmark class priced at S+23.5 basis points, the tightest pricing level since the beginning of November when MSC 06-HQ10 priced at 22 basis points over swaps. Launch levels on the JPMCC deal was 24.5 to 25 basis points on the $1.7 billion A3 class, which is slightly improved from original guidance levels of 25 to 26 basis points over swaps.
This year set a new record in primary issuance with $160.1 billion, up nearly 17% from 2005's $136.4 billion. Other records set this quarter included the largest deal size ever - JPMorgan Securities' LDP9 for $4.9 billion. It is also the largest quarter on record - $51.9 billion versus $47.1 billion in the fourth quarter of 2005.
While spreads weakened slightly in the last two months of the year due to heavy supply, average pricing spreads continue to tighten from previous years as the sector attracts more and more investors due to quality, improving liquidity, attractive yields, etc.
"Fundamentally, we continue to think that CMBS offers good relative value versus many of the alternatives." Merrill Lynch analysts said. "Corporates, residential passthroughs and agency debentures remain very tight. " They added that even triple-A home equity loans have stayed in a narrow range with concerns regarding the housing market have risen and mezzanine bonds in residential sector have moved considerably wider.
The lower investment grade area has benefited significantly from the CDO bid. A look ahead into early 2007 anticipates a quiet start to January as is typical, then picking up after mid-month following the CMSA conference.
JPMorgan Securities analysts said only three fixed-rate deals are expected during the month. This should allow spreads to tighten from recent levels. For the first quarter, however, issuance looks to remain robust.
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