CMBS investors kicked off the quarter with a showing of strong demand in secondary markets, sending spreads on last cashflow AAAs tighter by a few basis points, according to two investors and a trader. Buyers were motivated by higher interest rates and light new issue supply.
“Secondary demand has picked up, we’re seeing AAAs go tighter by probably 2bps to 3bps,” said an investor. “With rates moving higher, I think that’s bringing in the yield bid.” The 10-year Treasury reached 2.37% on Friday, up from 2.33% on 29 September and a yearly low of 2.05% on 7 September.
Primary issuance has been light and people are selling into a strong bid for shorter-duration paper, said a second investor. There were two new issue deals in the market this week, the USD 1.05bn MSBAM 2017-C34 and the USD 705.4m WFCM 2017-C40, with a USD 410m SASB on Hyatt hotels announced earlier today, as reported.
“The quarter-end felt looser, with all the supply coming in late September, so people were starting to back off,” the trader said. “Things are tighter now.”
Spreads on CMBS 2.0/3.0 bonds are 1bps-3bps tighter, while those on SASB bonds are 1bps tighter, according to an ICE Data Services research note today.
A USD 1.5m (original) OMPT 2017-1MKT C covered at S+ 127bps on 4 October, according to the Debtwire ABS database. The USD 975m deal is backed by the 1.6m sq ft One Market Plaza office property in San Francisco’s Financial District, according to Trepp data.
A USD 4.95m MSAT 2005-RR4A H on the same list covered at 100.5, compared to talk in the mid-to-high 90s in February 2014.
A USD 400,000 JPMCC 2014-FL6 A bond on the same list did not trade. The deal’s largest loans, which are all current, are the USD 67.5m Southland Mall, the USD 54.1m University Office Park and the USD 44.3m Hyatt Regency DFW, according to Trepp.