That phrase could be used to describe the spread levels in CMBS since the Sept. 11 attack, as expectations and indications of levels have fallen short of reality. An immediate 5 basis point or so widening for 10-year triple-A tranches was noted, but when used by dealers to get a handle on bid-list pricings, spreads were seen another 5 basis points wider, and subsequently cheapened further. Currently the sector trades at 62 basis points over 10-year swaps. What participants are waiting for now is a marquee conduit to print in the coming weeks and give a current benchmark for inventory and the future pipeline. Unfortunately, that event looks to be at least couple of weeks away.

Buying has been tepid with most investors unsure how the recent tragedy will dovetail with the previous indications of a slowing economy. The cautiousness is allowing the sector to cheapen to attractive levels, however, and now looks attractive versus agencies, says Salomon Smith Barney. The firm remains neutral though on the linkage between CMBS and corporates, the latter of which continues to cheapen. They realize the structured nature of the product provides some protection in a slowing economy, but as Roger Lehman of Merrill Lynch notes, expect both of the sectors to fluctuate with overall market sentiment.

The uncertainty matched with willingness to take advantage of the structure and diversification of CMBS puts additional focus on the mix of collateral, rather than just on the name or ratings alone. The hotel and lodging sectors of the market are the obvious industries hurt by the attacks, exacerbated, notes Merrill's Lehman, by the over-building in recent years. Office space in Manhattan may experience a short-term boost, says SSB, who recommends that investors add to that market exposure for now. And despite an overall loss in consumer confidence, Lehman believes that grocery and drugstore, as well as discount retailers, will continue to perform well within the retail sector. As a caveat, he stresses the need to look at tenant quality and diversification in the individual deals.

Expectations for a busy $10 billion CMBS calendar have been reworked to a hopeful $4.5 billion, according to CSFB, with the remainder pushed off to October. Single-borrower issues, especially those with hotel collateral or offered as "trophy assets" will be particularly difficult to market, and in CSFB"s opinion, likely held until sometime next year. Market indications on existing single-asset issues were recently 5 basis points wider than conduits, but would likely require further concession on newer issues. Wider spreads over the past couple of weeks were already heading wider prior to September 11 because of the slowing economy, upcoming supply and overall richness of the sector. With the calendar now being delayed, spreads will anticipate a supply slowdown heading into the end of the year, and by mid-October should be at their wides, says CSFB.

Recent issues, by no means thought of as benchmark, include the single-asset Freehold Raceway Mall in New Jersey via Morgan Stanley Dean Witter priced on Sept. 18, and the Deutsche Bank, Bank of America $1.5 billion large-loan COMM 2001-J2 conduit that priced last Wednesday. Both came wider versus initial talk, with the Freehold issue only five basis points wider due to previously lined up investors. The COMM transaction, reworked to remove a lower Manhattan apartment complex, priced the triple-A 10-year tranche at 77 basis points over swaps, 3 wider than revised guidance, and 29 wider than initial guidance.

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