The Current Mbs and Cmbs Markets – a Summary of Issues, Causes, and Future Markets
With today’s economic difficulties it is no surprise that the markets for MBS and CMBS are down. The financial market crisis has definitely hit our economy and the MBS and CMBS markets are no exception.
The credit meltdown has led to a curious pricing disparity in the commercial MBS market: Triple-A paper with a 5-year term is suddenly trading at spreads way above similarly rated 10-year bonds, due primarily to rising concerns about "extension risk." Last Friday, 10-year super-senior CMBS was trading at 1,050 bp over swaps, while the spread on 5-year notes swelled to 1,300 bp. Over the summer, before the credit markets went into a deep tailspin, the …show more content…
While acknowledging that technical factors, including the greater liquidity of 10-year paper, play a role in the gap in spreads, Barclays CMBS analyst Aaron Bryson attributed "the bulk of the underperformance [of 5-year CMBS] to extension-risk concerns." Investor preference for 10-year CMBS means the long bond now trades much more actively than 5-year notes. "We're seeing a lot more buying of 10-year bonds because they are seen as more safe and more liquid," one trader said.
Susan Merrick, head of Fitch's CMBS group, estimates that by yearend the percentage of CMBS loans that are at least 60-days past due will grow to 0.78%, from 0.51% at the end of October. The main reason for the increase, Merrick said, is that some maturing loans can't be refinanced in the current credit environment.
According to J.P. Morgan, $18 billion of CMBS loans are set to mature next year. The amount rises to $35 billion in 2010 and $56 billion in 2011.
It is clear the MBS and CMBS are still being affected in a negative way due to the credit meltdown the financial market crisis and the current overall economic position viewed in the United States and even around the world. But in my opinion is