CMBS spreads have been softer of late, due to a combination of swap spread compression and a general concession for upcoming supply. The calendar is flush with over $13 billion of pending supply, suggesting that some may be taken down or postponed until next year, especially if spreads continue losing ground.
There has been increased competition as well of late from the corporate sector. Bid list activity has been ample enough, along with profit taking and a lack of dealer support, suggesting at least some of those funds are earmarked for the $10 to $15 billion in corporate supply expected over the week. Triple-A 10-year CMBS spreads were 4 basis points wider at over 50 basis points to swaps, and lower credits saw at least twice the amount of widening.
There is some evidence, however, of continued support in CMBS, according to some analysts, despite the budding pipeline and competition from other markets. More than one dealer pointed out that insurance companies have cash to spend, both due to underwriting and RMBS paydowns in their portfolios. Further, CMBS paper fits the bill as a safe, attractive-yielding sector.
So far, ten-year, triple-A tranches have attracted buyers at levels of 50 basis points plus versus swaps, though investors are willing to admit spreads as wide as 52 basis points over are possible this time around.
Regarding the projected supply before year's end, Credit Suisse First Boston notes that 27% of 2001 and 21% of 2000 of annual issuance came during November and December, setting a precedent for active two-month issuance. So while spreads may waver during this period, the market is familiar with the 21% or so set before year-end 2002.
The chart shows a summary of the most recently priced and currently marketing issuance.