The synthetic index for CMBS bonds rolled for the first time last week, ushering in several changes that are anticipated to make the indices more liquid. Investors in the new CMBX.2 will now have the ability to reference the double-B tranches of the CMBS reference entities. Also, the fixed-rate coupons set for the second round of indices was considerably more conservative than those set for the CMBX.1, a change which should reduce the upfront payment investors exchange for making trades in the new index, according to Citigroup Global Markets.

Initial index coupons for the CMBX.2 for the popular triple-B minus tranche are now only 87 basis points, compared with 134 for the CMBX.1, for example. The new double-B tranche was set at a 180 basis point coupon.

As with the home equity sector, the more recently issued the CMBS, the poorer the underwriting and credit quality appears to be. In the CMBS sector, this differentiation is generally anticipated to be slighter than within home equities. The CMBX.1 LTV measured by Moody's Investors Service rose to 101.35% compared with the 99.20% on the CMBX.1, which has benefited from seasoning and appreciation. Lower rated tranches of the synthetic index for CMBS tightened ahead of last week's roll, with the triple-B minus tranche gapping out by 10 basis points.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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