In the give-and-take world of the markets, the CMBS sector has been on the latter side of that trade this week. Spreads are moving back out since snapping into 2001 narrows in a simple profit-taking mode. Bid lists seen the last couple of weeks are now quiet, leaving dealers holding the bag and looking for new homes. This has the 10-year triple-A spread to swaps back toward 50 basis points from recent tights of 44 basis point levels. The most interesting part of the trade is that now the buyers, in some cases, are former sellers, picking their paper back up at cheaper levels.
Given the speed at which the market tightened early this month, some retraction was not wholly unexpected. In fact, spreads remain in a range agreed upon by most dealers and should remain as such for some time. The current dearth in new issuance is keeping demand healthy, while a growing calendar is pitting that bias against itself.
For the most part, triple-A spreads are fairly valued even after the recent cheapening. Instead, focus is shifting to other parts of the credit spectrum for value. The triple-B area was a fan favorite for weeks, but that sector has tightened 30-45 basis points from post-Sept. 11 wides, according to Greenwich Capital. Value for those credits can still be found, however, with the non-Moody's rated tranches, which trade 15-20 basis points wider. Instead, the firm recommends triple-B investors look at single-As, which trade at a 26 basis point pick-up, with the added bonus of diversification in conduit tranches.
The nearly $3 billion in bid lists over the last two weeks caused a stir in the markets. For review of that activity, Lehman Brothers provided a summary of the flow in a recent research report. According to the firm, 95% of the sales were triple-As, with triple-Bs making up just 2.5%. Assets were evenly represented across 1998-2001 vintages, with maturities concentrated in the six- to10-year range.
There has been little noise from the primary sector other than what was known last week. Of the changes, the CSFB floater priced on Thursday, with the triple-A-rated 1.7-year A class printing two basis points through price talk at 38 basis points to Libor. Looking ahead, GMAC has their conduit back in premarketing, following last year's regulatory violation-induced delay. The deal, dubbed GMACCM 2002-C1, totals $710 million and is little changed from previous structure. Behind that, Washington Mutual has firmed up Goldman Sachs to bring their $420 million multifamily-backed issue. Launch is likely sometime this week.