CMBS spreads tightened on the back off better-than-expected CMBS loss projections from BlackRock.

This year BlackRock was hired by the National Association of Insurance Commissioners (NAIC) to analyze the CMBS holdings of insurance companies with the results of the analysis being used to help determine capital requirements.

As with RMBS in 2009, the NAIC decided to assign capital requirements for insurance companies based on the expected losses that the CMBS securities will take rather than on third-party ratings, which are calculated based on the probability of the first dollar of loss. Earlier predictions placed losses substantially higher than what was reported by BlackRock.

"The CMBX Indices jumped yesterday on the news that BlackRock’s loss projections for CMBS securities were not as high as many analysts had predicted," explained Scott Buchta, head of investment strategy at Braver Stern.  

Base case losses on the 5 CMBX cohorts ranged from 6.7% (CMBX1) to 12.0% (CMBX4). Buchta said that CMBX AJ classes saw the biggest jump in prices on this news — many were up ~1.5 points on the day.  

Additionally, CMBS cash spreads moved another eight basis points tighter as the next round of quantitative easing should help bring more money into this sector.  


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