NEW YORK, May 6 (IFR) - A strong bid for yield has pushed
mezzanine CMBS 3.0 bond spreads to the tightest level in the
last 12 months and only a spitting distance away from pre-crisis
tights. And this pace of tightening is prompting concern among
Fast money and yield-focused accounts helped squeeze
new-issue Triple B minus spreads 5bp tighter last week to swaps
plus 325bp, the tightest level in the past 12 months, according
to a Jefferies report today.
Interest for the bonds however is showing no signs of
abating with this week about US$225m in more secondary Triple B
minus bonds put out for bid, according to Scott Buchta,
strategist at Brean Capital. He noted good levels of trading in
both seasoned and new paper, with three large lists driving much
of the flow.
The Triple B minus tranches of some 2011 deals were on the
bid lists with covers at spreads as low as swaps plus 250bp.
Among those, a US$16.61m slice of the Triple B minus rated E
tranche of DBUBS 2011-LC1A covered Monday roughly 10bp tighter
than talk of swaps plus 260bp, according to one dealer. Moving
even tighter was a US$10m slice of the Triple B minus D tranche
of UBSCM 2012-C1, which covered about 22bp inside talk of swaps
Overall, subordinated CMBS have tightened about 70bp-90bp
from the beginning of the year, according to Darrell Wheeler,
analyst at Amherst Securities.
While seeing it as a good time to take profits, Wheeler was
concerned by the pace of tightening of the bottom pieces of
freshly-minted CMBS deals, which lacked performance history.
"The market seems challenged to really distinguish more than
10 or 20 basis points among credits given the strong liquidity,"
he said. "Yet there are credit differences among collateral that
make some of these credits very risky if we incur a recession."
In many new issues, Amherst's Wheeler sees losses reaching
3% to 5%. But for a few deals, losses could reach 8% to 10%, he
said, warning that scenario would definitely impact some of
"So the current market is definitely discounting near-term
recession risk," he added.
(Reporting by Joy Wiltermuth; Editing by Shankar Ramakrishnan)