The CMBS market is holding onto impressive spread levels from top to bottom. With new-issue triple-A 10-year paper around 32 basis points over swaps, and triple-Bs at 105 basis points over swaps, the market is wondering how long these levels are sustainable. The new-issue calendar is cooperating, with a slow cadence of conduit paper since the flurry seen at the end of the first quarter, and investors are getting more used to top-heavy deals that are a cross between a fusion, a large-loan and a traditional conduit.
That said, there are other forces at work. The market is suffering from a lack of supply everywhere, especially in Agency paper. The residential mortgage market has actually experienced shrinkage since mid-2002, and most recently is expected to post a record negative $30 billion for 30-year fixed paper outstanding, down from the April record of negative $28 billion.