Analysts expect the three-straight-week lull in CMBS issuance to be followed by an active period that should boost issuance volumes closer to forecasts at the beginning of the year.
The pipeline shows that as many as three conduits and five single-borrower deals could price by the end of April, according to a Barclays report last week. According to Standard & Poor's, Wells Fargo and RBS have registered a $1.25 billion conduit, and Wells Fargo is marketing a $449 million floating rate transaction backed by 25 loans.
Analysts at Bank of America Merrill Lynch anticipate nine conduit transactions totaling about $11 billion and six single-asset/borrower deals totaling about $3.6 billion will price by the end of May.
“Assuming these deals price as expected, private label gross issuance should total about $33.5 billion after the first five months of the year, which is actually about the same amount as the private label issuance that occurred during the first five months last year,” the BofAML analysts said in a report last week.
However, if issuance remains at the same pace, year-end private label gross 2014 volumes will get to about $80 billion, short of BofAML’s estimate for $100 billion.
The good news is the issuance pace so far might pick up. In CMBS, a significant shift in interest rates — in any direction — would increase borrower activity. “We think any significant move higher or lower in Treasury yields would actually increase borrower refinance activity and hence, increase issuance volume,” said BofAML analysts in the report.
Case in point: last May after the Federal Reserve announced it would begin tapering its bond purchases, interest rates shot higher and a wave of voluntary prepayments followed (see graph below).
Borrowers “that had been enjoying low coupons and rising property prices rushed to refinance before rates rose further,” explained Barclays.
On the other hand, a drop in rates would also impact prepayments as borrowers “try to capitalize on another chance to reduce their respective debt service obligations.”