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U.S. Economics: Macro Commentary & Insight

Securitized Products Spreads Continue to Grind Tighter

February 23, 2024
  • CMBS credit curve has flattened significantly over the last several months
  • Agency trading spreads have moved tighter on lighter YTD supply

Set against a backdrop of 10-year U.S. Treasury yields hovering north of 4% for most of this year, securitized product spreads have been grinding tighter, helping to offset some of that misery. Spreads on super-senior, long-term conduit paper have tightened by almost 25 basis points since mid-January, according to Commercial Mortgage Alert, with the credit curve flattening down through the BBB- bonds.

This move tighter has come amid larger issuance, with the alphabet of securitized products coming to market in the form of Commercial Mortgage-Backed Securities (CMBS), Single-Asset Single-Borrower deals (SASB), and a CRE CLO transaction. As issuance expectations for the year have surged in recent weeks, it can be easily seen just how much room for tightening still exists relative to supply of the previous decade.

Agency CMBS spreads have tightened this week in particular, where a couple of light weeks in TBA trading volume have sharpened spreads. Block-size five-year paper, where issuance volume still seems disproportionately heavy, tightened almost a full handful for select transactions. Longer-term 10-year Delegated Underwriting and Services (DUS) bonds caught a hot streak midweek, tightening by a couple basis points, especially for discount bonds. Our medium-term bullish stance on trading spreads tightening remains in place.

CMBS Credit Curve

Source: Commercial Mortgage Alert, J.P. Morgan, MBA

CMBS Annual Issuance Volume and Average
10-Year AAA Spread to Swaps, 2012-2023

Source: J.P. Morgan, Commercial Real Estate Alert, Bloomberg Finance L.P.,
Commercial Real Estate Direct

This commentary and any statements, information, data and content contained therein, and any materials, information, images, links, sounds, graphics or video provided in conjunction with this document (collectively “Materials”) has been prepared for informational purposes or general guidance on matters of interest only, and does not constitute professional advice, advertising or a solicitation. The Materials are of a general nature and not intended to address the circumstances of any particular individual or entity. You should not act upon the information contained in the Materials without obtaining specific professional advice. As such, nothing herein constitutes legal, financial, business, investment or tax advice and you should consult your own legal, financial, tax, investment or other professional advisor(s) before engaging in any activity in connection herewith. The information in the Materials is not a substitute for a thorough due diligence investigation. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in the Materials, and, to the extent permitted by law, Berkadia Commercial Mortgage LLC ( together with its affiliates, the “Company”) neither accept nor assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the Materials or for any decision based on them. No part of the Materials is to be copied, reproduced, distributed or disseminated in any way without the prior written consent of the Company.

Questions? Contact Us.

Josh Bodin

Senior Vice President
Securities Trading
josh.bodin@berkadia.com

Steve Bevilacqua

Assistant Vice President
Securities Trading
steve.bevilacqua@berkadia.com

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NET PERCENTAGE OF DOMESTIC RESPONDENTS TIGHTENING STANDARDS FOR COMMERCIAL REAL ESTATE LOANS

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