With just days left in Q3, there is a flood of new supply making the rounds, much of it expected by Sept. 30. Most of the deals come by way of conduit or fusion-type transactions, offering investors an alternative to the premium-priced triple-A tranches in the secondary. This is one of the reasons spreads have not suffered much in the face of a general spread-widening move experienced by the prepayment-laden mortgage, risk-adjusting agency, and headline-beaten corporate markets.
That said, not is all well with the CMBS market. Roger Lehman of Merrill Lynch notes that while investors are reallocating funds raised through bid lists, there is little new money coming into the sector. This may turn out to be a concern as competition with corporates appears to be on the rise. In the September Thomson Financial/IFR Portfolio Manager Survey, investors were starting to look at the triple-B part of the corporate credit spectrum as a target for future allocations.