January started off quiet due to conference schedules, followed by some light new-issue activity. However, what this January will be remembered for is the re-pricing of spreads.

Coming out of last year's slow supply calendar, there were expectations that spreads would begin to tighten. Hitting the tight end of the range, however, was not expected until late in the first quarter. The performance of the deals that priced this month changed all of that, including the idea that corporate crossover buying had ended.

The Morgan Stanley/Bear Stearns TOP-9 transaction was the best of its type since last fall, considering the high quality of the collateral and subordination levels. A spread of 42 basis points to swaps for triple-A rated 10-year paper was an impressive turnaround from just weeks before when spreads flirted with 50 basis points over swaps. Single-A and double-A spreads came two basis points through talk as well, as the CDO interest returned to the sector.

If that weren't enough to put the CMBS sector back on the map, Wachovia's fusion/conduit deal was a real eye opener. What the deal lacked in marquee status after TOP-9, it made up for in great marketing. Investors flocked to the paper enough to match the 42 basis points spread for TOP-9, which was at least one basis point through indicative levels.

Even more so than the Morgan Stanley/Bear Stearns offering, mezzanine paper came 2 basis points better than talk in the AA's and AA-'s, while single-A and single-A- were eight basis points tighter than talk. Triple-B paper priced five basis points through launch levels.

On the calendar, despite just 28 days in February, is more than $4 billion in fixed-rate conduit paper - significantly more than Februarys past. Investor demand, however, suggests that most, if not all, of the pipeline can be completed, starting with a joint Bear /Prudential/Wells Fargo/CIBC offering and an always-popular Lehman Brothers/UBS Warburg $1.5 billion transaction. These issuers came as a one-two package back in September 2002 - BSCMST 2002-PBW1 and LB-UBS 2002-C4 - and priced its triple-A 10-year paper at 46 and 49 basis points, respectively, over comparable swaps.

Lastly, Bear Stearns priced their $225 million floater offering last Wednesday. The 2.7-year triple-As came five basis points cheap to expectations, pricing at 60 basis points over one-month Libor.

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