Los Angeles – May 31, 2017 – CML spreads remained flat over the month while the 10-year treasury declined along with spreads for other public asset classes. The index for “A” rated bonds declined 6.2 basis points to 92 bps. Although there are lower spreads in the marketplace, the average CML spread would provide 70-100 bps of relative value as compared to this indice, and 20-50 bps of relative value as compared to “BBB” rated bonds. For “BBB” rated bonds, the benefit of adding CML’s is improved by the lower Risk Based Capital (RBC) charge of .90% for CM1 rated investments and 1.30% for “BBB” rated investments.
The new issue calendar picked up significantly in May with six conduits pricing for a total of $5.14b, bringing the YTD total to $15.7b across 17 deals. In addition, four fixed rate SASB deals priced for $1.4b and two floating rate SASB deals priced for $1.56b. Away from one smaller deal that priced on the wider side, AAA pricing ranged from S+92-98, while A- spreads ranged from S+180-195. The last 3 deals all utilized the horizontal RR strip, which meant that those 3 deals did not have a traditional BBB- tranche. We saw an uptick in the percentage of retail in this month’s deals, with an average of 23.8% versus 20.8% for pre-May 2017 deals. The additional exposure is generally from strip or power centers though, as we haven’t seen weaker malls creep back into deals. In secondary, generic non-RR spreads were relatively flat at the AAA level, with spreads 4-10bps wider across the rest of the rest of the stack. Tighter trading AA- and A- bonds continue to feel soft in secondary as lower rates make it difficult for those to tighten. The calendar is expected to continue to be robust throughout June, with several new deals projected to price in both conduit and SASB.
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