New issuance has continued to run into problems of late, though the timing of new deals was not delayed on recent new offerings. Spreads have continued their widening trend over the past two weeks in the primary markets, with the senior triple-As actually reaching out beyond 25 basis points over swaps triple-Bs were well over 100 basis points over, and the steepening of the credit curve garnered more attention than the Treasury curve's moves of late. The pipeline may have been "yawning," but once supply was absorbed off this record month, account appetites were expected to reawaken and prove less selective.
Over the same time period, the secondary market was slightly below average in supply via bid lists, while dealer offering sheets were almost unchanged on cash spreads. Offerings held steady on most secondary benchmark issues, with the primary/secondary clearing differential at about three basis points on A4s. The conclusion of March's heavy pipeline was expected to lend further bid interest to secondary triple-As, as "under allocated" accounts off new deals will be on the prowl to put money to work.
In the CMBX space, protection spreads were back out again and most decidedly felt in lower IG classes, with widening to the tune of more than 50 basis points on the double-Bs. The continued gapping of the triple-Bs will mean that cash will lead credit wider for now as that correlation has to have some relevance to provide protection.
Private-label fixed-rate CMBS
The $1.6 billion MSC 07-IQ13 deal and the $5.3 billion JPMCC 07-LDP10 have priced. Spreads were wider on the larger of the two deals, with the IQ seen as just a "drop in the bucket." Ten-year triple-A super seniors came out at 28 basis points over swaps on the LDP10s, which is two basis points wider than initial guidance. The triple-Bs continued their trek outward, as they were 20 to 40 basis points wide of where they were initially indicated. Triple-Bs priced at 130 basis points over swaps on the LDP10 (guidance was for 115 to 120 basis points over swaps) and the triple-B minus finished at 160 basis points over swaps (30 wider than first indications). The $2.5 billion CWCI 07-C2 "Cobalt deal" from Countrywide Securities and Wachovia Securities was expected to launch and price today. Initial talk was a bit more promising at 29 over swaps on SS triple-As and 140 over swaps on triple-B minus credits. The $4 billion Commercial Mortgage Passthrough Certificates deal was expected to price in April. Total issuance for March was expected to surpass $36 billion, with the average deal size at over $4 billion.
Floating-rate CMBS
The floating-rate sector was in the process of marketing another deal, with settlement expected in mid-April. The large loan issue from Bear Stearns/Banc of America Securities/Countrywide Securities/Merrill Lynch started price talk on Monday with only the lower IG widening out at all. Triple-B-minus paper was seen at 110 basis points over Libor, which is five basis points wider than the previous week's level.
Agency CMBS
Agencies were quiet, as no new deals and only limited secondary bidding took place. Spreads stayed unchanged overall as both Ginnie Mae project loan REMICS and FNMA D.U.S. were bystanders as spreads in competing markets fluctuated. The gapping in the conduit space accounted for the tightening of the GNR/CMBS pick, as only the shorter 3.5-year GNPLs offer any pickup from private label commercials. Where the 10-year pick was once as wide as 10 basis points, it is now almost flat (actually, one basis point pick over for GNRs). The increased sponsorship in this sector has had a lot to do with the tightening. In D.U.S. relative value pickups, the tightening of agency debentures and the stability of the swaps curve accounted for the added spread pickup, week over week. While debentures were tighter by two to three basis points in five- and 10-year bullets, D.U.S. was stable, and relative spreads widened out.
CMBX
The credit default protection market continues its widening binge as the lower IG spread movement almost seems to have life of its own. While the higher IGs (triple-A to single-A) were only out slightly to adhere to cash movement, the triple-Bs and double-Bs were wider by 10 to 50 basis points in both CMBX.1 and CMBX.2. The latter index is viewed as having less stringent underwriting standards and therefore weaker credits, yet both moved out at a similar pace. This month, Markit rolls out the latest credit default protection grid and this one contains newer deals and is probably seen as even less credit-worthy than CMBX.2. Both CMBX.1 and CMBX.2 appear to have some room to stay wider until the cash markets settle down.
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