Last Nov. 3, analysts Lehman Brothers initiated a recommendation to buy five-year triple-As versus three-year and 10-year triple-A CMBS. After a good run, they are now closing out the trade.
At initiation, a duration-neutral, long five-year versus short three-year and 10-year position generated 5.9 basis points of incremental carry. Furthermore, analysts expected five-year CMBS spreads to outperform three- and 10-year spreads. The five-year portion of the swap curve was trading at historically rich levels versus the two- and 10-year swap rate, which is driven by anticipation of an aggressive Federal Reserve easing, analysts said.