In the structured finance space, the Sept. 13 Federal Reserve announcement that it is beginning a new quantitative easing program of buying $40 billion in MBS per month is set to have the most impact on levered CMBS pricing levels.
As investors accept that the very low rate environment is here to stay some have been driven to add incremental basis points in these riskier sectors, Citigroup Global Markets analysts said in a report today.
According to a Thursday Trepp report, after the news happened, spreads on legacy super seniors narrowed by about five basis points on average and even more for less quality names. The bellwether GSMS 2007-GG10 A4 bond outperformed the broader market, finishing at 178 basis points over swaps. This was nine basis points tighter on the day. The GG10s have now tightened 15 basis points over the last two days.
At 178 basis points over swaps, the GG10s are now six basis points off the tightest closing spread since the collapse of Lehman Brothers in 2008, according to Trepp.
Fitch Ratings said in a report today that QE3 could also meaningfully impact equity REITs over the longer term.
"We believe ownership and long-term financing of commercial assets ties equity REIT performance closely to the general economy," Fitch analysts said. "If the plan maintains or causes a decline in long-term U.S. Treasury rates, we would expect a drop in all-in borrowing costs for REITs. With low interest rates in many other categories, the stable dividends paid by REITs could compare well. "