Review and Outlook: International CMBS Continues to Surge. Global commercial mortgage-backed securities (CMBS) volume for the first half of 2000 was $27.9 billion, down $7.0 billion or 20%, from the $34.9 billion registered during the first half of 1999. Partially offsetting a substantial decline in U.S. issuance was the continued growth of international CMBS. The share of non-U.S. CMBS, which was less than 1% in 1998, and stood at 14% for 1999, now totals 25%.

Given the series of interest rate increases that took place during the first half of this year, and the resulting slowdown of conduit originations, we are revising our U.S. CMBS volume forecast for 2000 downward to $47 billion, from $52 billion. Although at $20.8 billion year-to-date we are currently less than half way to that goal, there are several opportunities for pick-up toward year-end. First, some conduit programs got off to a slow start in the first half by maintaining low inventories at the end of 1999 because of Y2K concerns, but they are now reporting better results. Further, we expect to see some increased issuance of seasoned loans, especially from life insurance companies that have or are contemplating going public, as well as continued strength in large loans and floaters.

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