The CMBS market grew considerably quiet last week with a few deals pre-marketing but little other action worthy of mention. Looking forward, there is a mixed view on spread performance, but, in the main, there are more risks associated with a tighter spread bias than a widening one.

This is mainly because of the pipeline. There are two conduit transactions currently making the rounds - GECMC 04-C3 and MSCT 04-TOP15 - which total about $2.3 billion. Aside from those issues, another $5.5 billion is possibly slated for the month. Last week, spreads in the 10-year triple-A sector for new paper were as high as 36 basis points over swaps. However, some dealers were reporting secondary levels a bit tighter at the start of last week with the pipeline cleaned out. Investors are reticent to turn the market around quickly, so spreads in the low-to-mid 30s seem to be in place for the near term.

There has been some mention of crossover buying from corporate debt holders as the latter market has richened versus CMBS of late. According to IFR Mortgage Data data, CMBS paper is cheap to industrial-A corporates by a 12-month z-score of +1.38 and a 6-month z-score of +1. Outside of the relative value merits, triple-B paper is in a better position to tighten further due to the ongoing CDO bid versus any gains in triple-As as the spread is currently 60 basis points versus a three-month average of 55.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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