Capital Markets Update Week of 4/29
April 29, 2025
Private-Label CMBS and CRE CLOs
Only one transaction priced last week:
- BBCMS 2025-5C34, a $783.1 million conduit backed by 37 five-year loans secured by 66 properties from Barclays and seven other loan contributors.
Deal volume has slowed considerably following President Donald Trump’s April 2 tariff announcement. Only $3.2 billion of transactions have priced in April, well below the monthly average of $15.3 billion in the first quarter. According to Commercial Mortgage Alert, issuers are cautiously stepping back into the market with several transactions currently making the rounds with investors.
By the numbers: Year-to-date private-label CMBS and CRE CLO issuance totaled $49.1 billion, representing a 91% increase from the $25.7 billion recorded for the same period in 2024.
Spreads Tighten but Remain Near Year Highs
- Conduit AAA and A-S spreads were unchanged at +103 and +150. YTD, they have widened by 28 bps and 45 bps, respectively.
- Conduit AA spreads were tighter by 15 bps at +205, while A spreads were tighter by 10 bps at +265. YTD, they have widened by 70 bps and 100 bps, respectively.
- Conduit BBB- spreads tighter by 10 bps at +615. YTD, they have widened by 190 bps.
- SASB AAA spreads were tighter by 10 bps to a range of +142 to +165, depending on property type. YTD, they have widened by 35 – 50 bps.
- CRE CLO AAA and BBB- spreads were unchanged at +175 and +445, respectively.
Agency CMBS
- Agency issuance totaled $2.3 billion last week, comprising $1.7 billion of Fannie DUS, a $276.6 million Freddie K transaction, and $331.9 million of Ginnie transactions.
- Agency issuance for the year totaled $42.7 billion, 36% higher than the $31.3 billion for the same period last year.
The Economy, the Fed, and Rates…
Economic Data
- Cooling but not collapsing. Forecasters have slashed April payroll expectations to ~125,000 (from 228,000 in March) as tariff angst dents hiring, yet the unemployment rate is still seen holding at 4.2% – a level awkwardly robust for anyone betting on near-term Fed cuts. “We expect hiring to moderate amid the uncertainty but be sufficient to keep the unemployment rate steady,” BNP Paribas notes.
- Growth momentum has slipped into first gear. Q1 GDP growth stalled significantly, with forecasts showing the economy expanded at just a 0.4% annualized rate (compared to 2.4% in Q4 2024), the weakest pace in nearly three years. The trade deficit is expected to be the largest drag, as businesses front-loaded goods imports ahead of Trump's tariff surge.
- Sentiment slumps, inflation fears pop. Consumer sentiment fell to 52.2 in April, the fourth-lowest level since the 1970s, with consumers anticipating inflation rising at 4.4% over the next 5-10 years (highest since 1991) and 6.5% over the next year. About 60% of respondents offered unsolicited comments about tariffs' negative impact.
- Housing loses its spring. Existing home sales fell 5.9% in March to an annualized rate of 4.02 million, the weakest March since 2009, as high mortgage rates and prices constrained buyers. The median sales price increased 2.7% from a year ago to $403,700, a record for March.
- Supply-chain red flags. Orders for business equipment barely rose in March (0.1% for core capital goods orders), suggesting companies grew cautious amid uncertainty about tariffs and tax policy. This moderation indicates businesses were becoming hesitant about investing ahead of Trump's April tariff announcements.
- Labor market early warning lights. Initial jobless claims hover near 220,000, but Fed‐district surveys show companies shifting from “never fire” to “hiring freeze.” JOLTS openings steadied at 1.07 per unemployed worker – below the pre-COVID 1.2 norm – suggesting the heat is coming out of the market.
Federal Reserve Policy
- Powell’s new nickname: ‘Mr. Too Late.’ The Chair is determined to prevent tariff-induced price bumps from morphing into a second inflation wave, preferring to be late with cuts rather than wrong with a premature pivot. “Our obligation is to keep longer-term inflation expectations well anchored,” he warned on April 16.
- Doves with talons. Governor Chris Waller says he’ll tolerate tariff-driven CPI blips but would “expect more rate cuts, and sooner” if unemployment spikes; Cleveland’s Beth Hammack hints action could come as early as June – but only if the data “clearly” demand it. Translation: the bar for easing is higher than traders think.
- Inflation-expectations jitters. Governor Adriana Kugler now describes long-run expectations as “largely” (not “well”) anchored, while Richmond’s Thomas Barkin says they “may have loosened.” Semantics matter: the Fed won’t cut until those anchors firm up again.
- Consensus: sit tight in May. With mixed data and market volatility subsiding, the FOMC is poised to keep rates unchanged on May 7. Powell would rather risk a recession than rekindle 2022-style inflation – expect plenty of “data-dependent” caveats but no dove-call.
Treasury Yields & Market Structure
- The “Sell America” trade. Money is pouring out of Wall Street and into overseas exchanges, leaving the MSCI USA down 11% year-to-date while its ex-US counterpart is up 4% – the largest performance gap since 1993. The dollar has shed 8% along the way, an unmistakable tell that foreign funds are not simply rotating sectors but abandoning the U.S. capital stack altogether. Deutsche Bank captures the mood: this is “a stagflationary repricing of U.S. assets,” a wholesale markdown that reflects slower growth, sticker-shock inflation, and an administration whose tariff roulette has pushed investors to seek refuge – and yield – elsewhere.
- Steepening curve. The Treasury yield curve has steepened meaningfully: front-end yields are anchored by recession risk and easing expectations, while the long end faces “structural and political pressures.” The massive sell-off in the 30-year Treasury bond in early April was particularly alarming to investors as it "read as a signal that the long-term liabilities of the U.S. were suddenly suspect." The differential between the 2-year and 30-year yields at the beginning of the year was 54 bps, and, as of Friday last week, it was 95 bps.
- Term-premium revival. As investors reprice the risk of U.S. capital, the term premium – extra yield investors demand for longer maturities – has climbed to the highest in over a decade, said Pictet Asset Management in a note. The asset manager calculates that the premium could rise at least another 25 bps from the current level as markets re-price political risk and ballooning deficits.
- Leverage is the market’s frenemy. Leveraged “basis” and swap-spread trades – $800 billion-plus by some counts – have become indispensable shock absorbers for the $29 trillion Treasury market, yet their rapid unwind after the weak April 8 auction amplified the sell-off. Richard Berner, a finance professor at NYU and former director of the U.S. Treasury's Office of Financial Research, warned: