Capital Markets Update Week of 7/16
July 16, 2024
Private-Label CMBS and CRE CLOs
One CMBS transaction priced last week:
- CONE 2024-DFW1, a $687.1 million SASB backed by a floating-rate, five-year loan (at full extension) for CyrusOne to refinance a 644,000 sf data center in the Dallas-Fort Worth area
According to Commercial Mortgage Alert, six additional offerings totaling ~$5 billion are currently in various stages of marketing.
Year-to-date private-label CMBS and CRE CLO issuance totaled $50.2 billion, well ahead of the $19.3 billion for the same period last year.
Spreads Mixed
- Conduit AAA and A-S spreads were unchanged at +100 and +140. YTD, AAA and A-S spreads are tighter by 16 bps and 25 bps, respectively.
- Conduit AA spreads and A spreads were wider by 10 bps at +150 and +220. YTD AA and A spreads are tighter by 75 bps and 155 bps, respectively.
- Conduit BBB- spreads were unchanged at +575. YTD, BBB- spreads have tightened by 325 bps.
- SASB AAA spreads were unchanged at +150 to +155, depending on property type. They have narrowed from +160 to +188 at the start of the year.
- CRE CLO AAA spreads were wider by 10 bps at +170 / +175 (Static / Managed). BBB- spreads tighter by 65 bps and 70 bps at +575 / +575 (Static / Managed).
Agency CMBS
- Agency issuance totaled $4.4 billion last week, consisting of $1.2 billion in Fannie DUS, $3 billion in Freddie K and Multi-PC transactions, and $179.8 million in Ginnie transactions.
- Agency issuance for the year is $51.9 billion, 14% lower than the $60.5 billion for the same period last year.
The Economy, the Fed, and Rates…
Economic Data
- The June Consumer Price Index (CPI) showed a year-over-year increase of 3%, down from 3.3% in May and below expectations of 3.1%. This was the first time inflation had hit 3% since June 2023. On a month-over-month basis, the CPI fell by 0.1%, the first decline since 2020.
- Core CPI (excluding food and energy) rose 3.3% year-over-year and only 0.1% since May – the mildest increase since January 2021, when large swaths of the economy were still frozen by the pandemic.
- June’s CPI report could be especially comforting to policymakers because it showed housing costs are slowing after an enormous run-up following the pandemic. Housing inflation, which reflects the cost of renting and accounts for about one-third of the CPI, has kept overall prices high. Housing costs were up 2% on a monthly basis, the smallest increase since August 2021.
- The June Producer Price Index (PPI) rose by 0.2% from the previous month, slightly above expectations. Year-over-year PPI increased by 2.6%, lower than the previous month, while Core PPI (excluding food, energy, and trade) was unchanged.
- The University of Michigan's Consumer Sentiment Index fell to 66 in early July, an eight-month low. This unexpected decline was attributed to ongoing high prices affecting Americans' views on their finances and the economy.
Fed Policy
- The latest data significantly increases the likelihood of the Federal Reserve cutting interest rates as soon as September. Fed officials, including Chair Jerome Powell and San Francisco Fed President Mary Daly, have signaled openness to easing monetary policy, contingent on continued favorable inflation and labor market data.
- Market expectations have shifted, with futures markets now pricing in a near-100% chance of a September rate cut. There is also speculation about the possibility of a larger, half-point rate cut instead of the standard quarter-point reduction.
- Fed officials have emphasized the importance of not causing unnecessary damage to the labor market while managing inflation. Fed officials remain cautious about potential future shocks, including political uncertainties and external economic factors.
Treasury Yields
- Treasuries rallied sharply last week, wiping out their 2024 losses, as traders fully priced in September and December rate cuts. Yields, which move inversely to prices, tend to broadly reflect investors’ expectations for short-term rates set by the Fed.
- The policy-sensitive 2-year yield ended the week down 15 bps to 4.45%, the lowest since February 7, while the 10-year yield declined by 10 bps to 4.18%, the lowest since March 12.
You can download CREFC’s one-page MarketWatch with statistics covering the economy and the CRE debt capital markets here.
Please contact Raj Aidasani (raidasani@crefc.org) with any questions.