CMBS Spreads Spike
August 13, 2014
Commercial MBS prices dropped sharply this week, erasing the remaining gains from a big rally last month.
The benchmark class of the latest conduit deal priced at 85 bp over swaps—far wide of the post-crash low of 71 bp achieved in mid-July. It was the highest spread on newly issued long-term, super-senior paper since early June.
Traders said that investors were demanding a higher spread to compensate for a drop int he 10-year Treasury yield, the base upon which CMBS yields are calculated. The Treasury yield has dropped by 15 bp since July 31, to 2.41%, because of a “flight to quality” by investors wary of turmoil in the Middle east and Ukraine.