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.

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