CREFC Capital Markets Update Week of 3/27
March 27, 2023
Spreads Continue to Widen as Issuance Remains Quiet
- Private-Label CMBS and CRE CLOs. Trouble in the regional banking sector over the last month has shifted to increased scrutiny of banks’ CRE loan exposure. The combination has led to significant spread volatility over the previous three weeks, adding to the challenges of bringing new transactions to market. Year-to-date private-label CMBS and CRE CLO issuance stood at $6.2 billion, well behind last year’s tally at this time of $43.8 billion.
- Wells Fargo, Morgan Stanley, Citigroup, and Bank of America began marketing a $1 billion conduit offering backed entirely by five-year loans (BANKS 2023-FYR1). According to Commercial Mortgage Alert, the whisper pricing on the super senior bonds was 200 bps over SOFR swaps – or 70 bps wider than a similar five-year deal priced on February 10 (FIVE 2023-V1). A $657 million more traditional conduit offering began pre-marketing last week, with the banks planning on announcing the transaction early this week.
- Treasury yields extended their declines last week, with the 10-year yield down 5 bps to end the week at 3.38%. The 10-year Treasury yield is now down 58 bps over the past three weeks. The two-year Treasury yield was down 7 bps on the week to 3.77% and is down 109 bps over the last three weeks – the largest three-week decline since 1987. The 10Y-2Y spread is now 39 bps, the narrowest since October. CME 1M Term SOFR was up 5 bps on the week to 4.81%.
- Benchmark CMBS spreads were wider at the top of the stack, driven by continued risk-off sentiment in the broader markets. LCF AAA conduit bond spreads ended the week up 10 bps to 170, with AA spreads flat at 275 and A up 25 bps to 450. BBB- spreads were unchanged at 950. SASB AAA spreads were up 5 bps to 190 – 275.
- Agency CMBS. Agency issuance totaled $3.4 billion, consisting primarily of a $1.2 billion Freddie K transaction and $1.6 billion of Fannie DUS. The Freddie K-Deal was postponed from the prior week due to market conditions. Agency issuance for 2023 now stands at $23.4 billion, 44% lower than the $41.9 billion for the same period last year.
Please contact Raj Aidasani (raidasani@crefc.org) with questions.