Bearish technicals around the Federal Reserve's potential asset sales out of its Maiden Lane III portfolio are still weighing on the CMBS market, according to JPMorgan Securities analysts in their most recent weekly report.
This is despite the fact that prices have already somewhat recovered. Specifically relevant to the CMBS sector is the $7.5 billion face value of A1s off of the MAX CRE CDO.
Last week, the Fed solicited bids from eight dealers to be completed by April 26. The Fed asked the following banks: Barclays Capital, Citigroup Global Markets, Credit Suisse, Deutsche Bank Securities, Goldman Sachs, Merrill Lynch, Morgan Stanley and Nomura Securities.
This morning Bloomberg reported that Credit Suisse, Citi and Goldman are teaming up to place a bid. According to the article from the news service, the trio is expected to give its preliminary price estimates tomorrow.
Deutsche Bank Securities analysts said that the timing of the Fed's announcement surprised them.
Though the Fed did not give a timeline for when a winner would be selected, it did say that it would only approve a bid if represents good value for the public and will not cause any market disruption.
Deutsche analysts stated that the CMBS market has started feeling the event's effect as buyers become more comfortable with the idea that "the shadow supply scenario is not going to happen and tried to front run the auction."
The bottom line is that the same technical and fundamental credit stories that have resulted in Deustche analysts maintaining their bullish stance on CMBS coming into 2012 are "all very much still at work here and will continue to be so," they said.
Meanwhile, JPMorgan analysts examined various outcomes the for potential sale. Analysts said that even though the assets are still more attractive vesus structured notes, there are obstacles to collapsing the deal, which mostly have to do with the high transaction costs.
But, JPMorgan analysts said that the economics of such a deal can still make sense at the right purchase price.