Though the commercial mortgage-backed market was not very active last week, there was a decent amount of buying in the 10-year sector, though not much selling going on at all.
"There wasn't much in the way of bid lists, just some buying dealers got listed out of 10-year triple A's," said a CMBS trader. "With this spurt of supply, it's difficult to get it placed away, but ultimately you get it done."
The PNC/Morgan Stanley Dean Witter conduit priced wider than expected (see page 8), but was reportedly exactly in line with the Salomon Smith Barney deal that priced on June 5.
"The initial talk for PNC was too aggressive, so it was forced to widen by three basis points," said another CMBS player. "Morgan Stanley was unable to persuade investors that it was a Tier One-minus transaction that deserved finer terms although we haven't heard the last of that argument."
An $886.2 million deal from Donaldson, Lufkin & Jenrette Securities, 2000-CF1, is expected to price next week, as well as the $195 Columbia Center Trust transaction, a Sovereign Bank lease-backed transaction for $310 million, and an upcoming Chase/GE conduit for $200 million. A Deutsche Bank floating-rate deal is also rumored to be nearing the market. It will have an A/B structure.
"CMBS is looking good," said another CMBS trader. "We have tightened one basis point on the week despite volume. For the past two months we've had much lower than average issuance. That has left the powder dry amongst institutional investors. Also, life companies, in their direct lending, have not booked as many loans as was budgeted and have supplemented this by buying heavily in single-borrower transactions, such as 12ll Avenue of the America."
Additionally, spreads have tightened significantly since the employment report from the government two weeks ago. Market players are predicting that if the Fed does nothing in the June 28 FOMC meeting, the market will posit a 25 basis point tightening in the August meeting and would further expect that this is the last tightening for this round.
"I think players are going to close up books early this year in terms of primary issuance," said a CMBS trader. "There won't be much collateral around so people will get it done in October."