Two bid lists of seasoned commercial mortgage-backed securities totaling more than $1 billion each were shopped late last week and garnered aggressive bids. The lists were mainly comprised of seasoned, AAA-rated CMBS from 1997-2003, deals that usually only had two or three AAA tranches, said Darrell Wheeler, managing director at Citigroup. “In addition, many of them have amortized to the point where many of these deals now offer 20% or better natural credit support, and the underlying collateral has benefited from what we estimate is an average annual appreciation rate of 15%,” he said.
Overall, there were strong bids on the bonds, which show that the secondary market is tightening. “It is likely able to withstand several more billion-dollar bid lists in the next few weeks,” Wheeler said. “Given the bid levels on this collateral, we continue to mark our 10-year new issuance super-duper paper at swaps plus 23 to 24 basis points.” He added the selling was likely the beginning of investor profit taking. “This benchmark has moved in three basis points in the past month and is now 2.6 basis points rich in our regression.”
Wheeler believes issuers will try and push spreads on AAA-rated super senior CMBS inside of swaps plus 20. “Dealers have low secondary inventories, as investors have been picking them over for the past two weeks. It is possible that the triple-A benchmark could tighten further,” he said.