A pickup in issuance of mortgage backed securities has yet to affect pricing, according to analysts at J.P. Morgan.
In research published Friday, they said that the upcoming supply calendar remains a primary focus for CMBS investors: Three conduit and one single borrower deal totaling $3.7 billion priced last week, bringing year-to-date private label supply to $56.7 billion. The visible pipeline of supply suggests full-year issuance will reach approximately $77 billion.
”So far, however, the pickup in supply has not affected pricing, as levels across the capital structure have remained consistent with the last conduit pricing in mid-August,” the analysts wrote. “The negative net supply in CMBS has been a positive technical for the market over the past few years. However, the ongoing recovery in issuance means this supply/demand dynamic has become more balanced.”
They said the upcoming supply is not negative, rather it is “now less of a tailwind for the market relative to the period when the CMBS market first reopened. If borrowers seek to take advantage of the drop in rates provided by the Fed’s delayed taper decision, this trend will remain in place.”
The market rallied last week on the back of the Federal Reserve’s decision to delay tapering its bond purchases. Benchmark legacy A4s tightened by 5 basis points to swaps plus 158 basis points, while 10-year new issue AAAs ended the week 7 basis points tighter at swaps plus 93 basis points.