As if trading activity wasn't fast enough in the first couple of weeks of the year, the post-Commercial Mortgage Securities Association (CMSA) conference trade only exacerbated the flow.
The secondary market saw more than $2.5 billion in bid lists hit the Street, mainly of triple-A paper, and challenged the rapid tightening that characterized the sector of late. As surprising as it was, spreads actually tightened further, much to the joy of portfolio managers who were offering out their expensive holdings and to the chagrin of dealers, who in some cases are still looking to increase their inventories.
The dealer angle might be losing some relevance, however, as buying early in the year has pushed some inventories to the "bloated" level, according to Roger Lehman at Merrill Lynch. And while a tight five-basis-points range is expected by the firm, the lack of dealer interest and attempts to sell some of that inventory opens the door for some spread widening in the near term. He, as well as other shops, view CMBS as rich to agency debentures, swaps, and RMBS at this point, capping for a short time the impressive gains made in just three weeks.
Deals are afoot
While not capturing the attention of the market like the end of 2001, the deal calendar is abuzz with talk of some upcoming supply. First out the chute is a $300 million floating-rate offering from Credit Suisse First Boston, heavily concentrated (54%) in multi-family property.
On that front, Washington Mutual is heard to be piecing together a $420 million multifamily and manufactured housing deal, but further details are unavailable including the likely syndicate. A floater from Banc of America, possibly $600 million or more, is making the early rounds as well.
On the fixed front, GMAC is still expected to hit the market with its $700 million conduit that was delayed in December because of an issuing procedure violation, but is still TBD. Lastly, Wachovia as well as joint leads Bear Stearns and Morgan Stanley are both putting transactions together for sometime next month.
Despite the tightening that CMBS have recently enjoyed, floating-rate triple-A spreads remain 15 to 20 basis points wide to their 2001 averages, according to Greenwich Capital. General credit concern dovetailed with the September 11 happenings to push those spreads wider, but Greenwich sees high levels of subordination, faster de-leveraging, and quality names in both borrowers and assets that all suggest credit security in the sector.