Most commercial mortgage-backed securities players reported last week to be a very quiet, with not much going on in the way of secondary trading, and no primary deal being launched. The highlight of the week, of course, was the pricing of the UBS Warburg/Lehman Brothers conduit for $1.37 billion (see market story, p. 4), which seemed to price "very appropriately," sources said, considering the state of the swap markets and the increasing demand for 10-year paper.

"The Lehman deal priced right where it should have for the 10-year bond," said the head of a CMBS trading desk. "I think that was the appropriate pricing, and I think the five-year priced a little cheaper than you would have expected it to."

It has become apparent that some investors are moving from five-year bonds into 10-year paper, sources said. Ten-years seem to have become a little bit more attractive vis a vis the five-year level, mainly because of what Treasury yields and swap spreads have done recently.

One source noted that swap rates had become about nine basis points higher at the 10-year level than at the five-year level, which had been flat for awhile.

"So now at least you get paid a little bit more to move out to the 10-year sector than to stay in the five-year sector," the source said.

Additionally, the demand for subordinate and mezzanine pieces is still not that great. "If you do a single-asset security where everybody likes the asset, you can sell the mezzanines at very tight levels," said a CMBS trader. "If you do a conduit transaction, the demand is a little more tepid, so the levels seem to be in line."

Another major CMBS trading desk had an extraordinarily active week, trading twice its usual weekly volume in the secondary.

Last week, the five-year triple A widened out by 8 basis points, the 10-year triple-A by 3.5, the double-A by 3, the single-A by 3, the triple-B's by 5 and triple-B-minus by 11.

"It was a brutal week for triple-B's," noted one CMBS player.

One bank advised to go long in triple-A's and to short triple-B's - a trade that is working nicely for the firm.

In the CMBS pipeline for the next couple of weeks: a $650 million floating-rate deal from J.P. Morgan, a $920 million conduit from PNC underwritten by Morgan Stanley Dean Witter, a Credit Suisse First Boston fusion deal for $1 billion and a Salomon Smith Barney/Greenwich Capital deal for $875 million.

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