CMBS Loan Pricing
Current new issue spreads in the CMBS market held flat, while the benchmark yield curve remained fairly stable. Current loan coupons generally fall between 4.90% and 5.20% on stabilized commercial real estate assets.
Market commentary
This year continues to be a positive one for risk assets, despite a recurring news loop of familiar risk factors. The market continues to move on trade negotiation and Brexit news, but seems more likely than not to hold onto recent gains now that the US government funding is behind us and the Federal Reserve maintains a flat rate outlook. The S&P 500 and DJIA have year-to-date gains of 11.5% and 10.0%, respectively1. CMBS spreads have held steady with benchmark AAA bonds in the mid to high 90’s1.
February economic data seems to corroborate the Federal Reserve’s decision to pause rate hikes. US core inflation (excluding food and energy) came in at 2.1% YoY, 0.1% lower than estimated1. Nonfarm payrolls increased by 20k, well below expectations of 180k1. Current short term bond market pricing still indicates that no further rate action from the Federal Reserve is the most likely outcome this year1.
Total 2019 year-to-date non-agency US CMBS issuance is $12.7 billion, comprised of $6.3 billion of conduit, $4.6 billion of floating rate single-asset/single-borrower, and $1.8 billion of fixed rate single-asset/single-borrower2. In February non-agency US CMBS issuance was $6.7 billion, while March month-to-date issuance is $3.3 billion2. Lower volume and low volatility have helped keep spreads stable over the last month. However, CMBS spreads have lagged behind other fixed income products in recent weeks, which may allow for modest near term tightening.
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John Sauro
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