The Federal Reserve accepted all 59 bonds, totaling $1.4 billion, presented in September’s Legacy CMBS TALF subscription. However, JPMorgan Securities analysts said that this still doesn’t explain the Fed’s methodology on how it accepts or rejects bonds for the program.

Analysts said that September’s success could be down to either a criteria change or investors catching on to the deals that are likely to be accepted.  

According to JPMorgan’s TALF subscription analysis, the 2006 and 2007 deal vintages each represented roughly one third of the entire subscription, which they said continued the shift into the 2006-2007 vintages from 2004-2005, which started in August.

By tranche, a majority of bonds submitted in September were again ‘A2s’, with 56% of the subscription coming from these types of bonds. This compares to 54% in August and 34% in July. 36% of the September subscription was ‘A4’ bonds, back near the 40% level of the July subscription.

“To us, this shift in appetite to more recent vintage bonds or to longer maturity bonds is the manifestation of the ongoing search for yield,” analysts said. “As the highest quality bonds (or those that are perceived to be the highest quality) tighten, investors will incrementally move down the risk spectrum for higher returns.”


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