CREFC Capital Markets Update: Week of November 15th
November 15, 2021
Economic Indicators
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CPI: Biggest Gain since 1990. US consumer prices rose at the fastest annual pace since 1990. The consumer price index (CPI) increased 6.2% from October 2020 and 0.9% from September, the largest gain in four months. Both levels exceeded all estimates in a Bloomberg survey of economists. Excluding the volatile food and energy components, core inflation increased 4.2% from October 2020 and 0.6% from September, coming in slightly below significantly elevated estimates.
- The October CPI report indicated continuing broadening of inflationary levels. Energy prices surged 4.8% (versus 1.3% in September), contributing to a third of the monthly increase. Core goods prices rose 1.0% (versus 0.2% in September), led by new and used cars. The price increases in services categories were also broad based, suggesting labor shortages and rapid wage growth may be seeping into consumer prices.
- Rents of primary residences, a key category which comprises nearly one-third of the CPI index and tends to influence inflation’s future path, increased by 0.4%. This follows a 0.5% increase in September, the fastest increase since May 2001 (also 0.5%). So-called owners’ equivalent rent, which estimates what homeowners would pay each month to rent their own home, rose 0.4%, matching the prior month and the largest advance since June 2006.
I got you crazy
Slower New Issuance in Holiday-Shortened Week
- Private-Label CMBS. Year-to-date private label CMBS and CRE CLO issuance reached $134.9 billion, 143% ahead of the $55.5 billion at the same point in 2020.
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In a shortened week as a result of the Veterans Day holiday, one conduit, one CRE CLO, and two SASB transactions priced totaling $3.6 billion. Activity this week is expected to be brisk with five offerings currently in the market including one conduit, one CRE CLO, and three SASB transactions. According to Bank of America, another $15.5 billion of transactions are in the visible new-issue pipeline expected to price by the end of the year.
- Spreads on 10-year super-senior AAA conduit CMBS ended the week at 67 bps over swaps, unchanged from the prior week and still lower than their pre-COVID levels of ~75-80 bps. BBB- spreads ended the week at 360 bps, also unchanged from the previous week. BBB- spreads reached a pandemic high of ~1,300 bps in April 2020.
- Agency CMBS. Issuance in the agency market hit a year-to-date total of $158.7 billion, higher by $12.3 billion than the same point in 2020. The increase in issuance has been driven by an unprecedented increase in Ginnie project loan transactions up 48% year-to-date compared to the same point in 2020, Fannie DUS transactions up 34% to $40.6 billion, and Freddie K transactions up 5% to $54.8 billion.
- The 2021 surge in Ginnie Mae Project Loan issuance comes on the heels of an earlier surge in supply in 2020, when issuance more than doubled that seen in 2019, as low rates and declining penalty points on outstanding loans led to a spike in refinancing activity. Year-to-date 2021 issuance of $40.3 billion is well ahead of full-year 2020 issuance of $33.7 billion, a record at the time.
