CMBS Sales Face $15 Billion Drop on Interest-Rate Jump, S&P Says
An increase of 55 basis points on 10-year Treasury yields coupled with a rise of 30 basis points on relative yields on top-ranked securities linked to property loans will put a damper on the resurgent market, S&P analysts led by Howard Esaki said yesterday in a note to clients. The analysts estimate 2013 sales of $65 billion after adjusting for the rising rates.
Commercial-mortgage bond sales that Credit Suisse Group AG says are poised to climb as much as 50 percent to $70 billion are being checked by investor concern that the Federal Reserve will soon pare $85 billion of monthly bond purchases. The unprecedented stimulus has suppressed interest rates and pushed investors into higher-yielding assets.
Wall Street banks have arranged $37.6 billion of bonds linked to everything from strip malls to Hawaiian resorts this year, according to data compiled by Bloomberg.
Speculation on when the central bank will reduce its stimulus spurred a decline across credit markets last month, pushing the yield on the benchmark 10-year Treasury (USGG10YR) note to 2.29 percent on June 11, the highest since April 2012.
JPMorgan Chase & Co. and Barclays Plc sweetened the terms on a $1.2 billion commercial-mortgage bond deal last week, paying investors 410 basis points more than the benchmark swap rate on BBB- bonds maturing in 9.97 years, according to people familiar with the offering who asked not to be identified because terms aren’t public. The debt was initially marketed to yield 375 basis points, or 3.75 percentage points, more than swaps, the people said.
A rise in rates should reduce lending volumes “on the margin,” according to Credit Suisse. The bank isn’t changing its issuance forecast, New York-based analysts led by Roger Lehman said in a report last week.
“Rates are so low now relative to historical levels that the recent backup still leaves mortgage rates very attractive,” the analysts said.
The yield on 10-year Treasuries has fallen back to 2.19 percent as traders await more signals as to whether the U.S. economy is strong enough for the central bank to curb its bond-buying. Fed policy makers gather today for the start of a two-day meeting.
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