CREFC Capital Markets Update Week of 1/23
January 23, 2023
Muted Issuance Continues; Down-in-Credit Spread Tightening
- Private-Label CMBS and CRE CLOs. The private-label market has yet to see the first transaction to price this year after another quiet week. Total issuance now trails last year’s tally for the same period by ~$6 billion. However, forward activity is picking up, with a January pipeline that includes three conduits, one SASB, and one CRE CLO.
- The 10-year Treasury yield ended the week 2 bps lower at 3.48%, while CME 1M Term SOFR was up 4 bps on the week to 4.52%. The 10-year Treasury is 167 basis points higher on a year-over-year basis, while CME 1M Term SOFR is 446 basis points higher. Elevated rates were the story of 2022, with financing costs becoming prohibitive for many borrowers, and, combined with continued market volatility, deal collateral became harder to aggregate for issuers.
- Spreads on 10-year on-the-run conduit bonds tightened last week, with AA – A down 20 – 25 bps to 240 – 375 and BBB- down 10 bps to 710. Super-senior AAA bonds were unchanged at 112. Senior AAA CRE CLO spreads were also unchanged at 230.
- Agency CMBS. Issuance was also quiet on the agency side, consisting of ~$700 million of Fannie DUS and ~$600 million of Freddie Multi-PC transactions. Agency issuance in 2023 is ~$12 billion behind where it was at this time last year. The GSEs ended 2022 falling short of their $78 billion lending cap. In addition to higher rates and reduced acquisition activity, the agencies faced stiff competition from banks, debt funds, and life companies over the past year.