The recent lull in issuance of private label commercial mortgage bonds has helped new issue CMBS spreads retrace much of the (modest) widening seen earlier in April, according to research published Friday by J.P Morgan.
Over the past two weeks, spreads on triple-A tranches of benchmark 10-year new issues have tightened 2 basis points to swaps plus 86 basis points, while double-A, single-A, and triple-B spreads tightened 2 basis points, 3 basis points, and 10 basis points, respectively, to swaps plus 140, swaps plus 182, and swaps plus 345.
The report notes that the pace of private label CMBS issuance has been “notably sluggish” in April, with just two deals totaling approximately $630 million pricing so far this month. Year-to-date issuance has reached $20 billion, more than 30% below the $29.7 billion of issuance through April 2013.
“Though the pace of supply has started to pick up again, with three conduit deals totaling approximately $3.9 billion currently in the market, issuance will still remain considerably below last year’s pace once these deals price,” the report stated. “Supply in April will mark one of the lightest months since the third quarter of 2012.”
Agency CMBS supply is also running low relative to 2013, though this is in line with J.P Morgan’s expectation. Year-to-date agency CMBS issuance has reached $14.6 billion, versus $20.5 billion through the same period in 2013..
While issuance has declined across all programs, the Freddie K-Program has seen the most significant drop. So far this year, four K-Program transactions totaling $5.3 billion have been issued, versus six deals totaling $8.8 billion through April 2013. Fannie ACES issuance has declined modestly to $4.2 billion from $5.0 billion, while project loan issuance has declined to $5.2 billion from $6.8 billion.
J.P. Morgan believes that the pace of agency CMBS issuance will remain slower in 2014 as the GSEs continue to gradually pare their multifamily footprint; it’s forecasting full-year supply of $55 billion.