Los Angeles – October 31, 2018 – Notable monthly movements in the market include an approximate .10%-.15% widening of spreads for agency loans (~.20% YOY) as well as “A” and “BBB” rated grade corporate bonds (~.22% YOY). The movement in agency spreads is likely due to heightened levels of the supply of bonds in the marketplace, both in Freddie K’s and DUS, while buyers are continuing to be more selective. Benchmark rates continued to widen with 1-month LIBOR up .07% (+.99% YOY), 10-year treausry up .08% (+.68% YOY), 30-year treasury up .16% (+.33% YOY). Upward movement in benchmark rates has been more pronounced over the last 12 months at the shorter end of the curve.
As reported in a recent Crittendon Rearch, Inc. article, “Count on life company lenders to dip their toes into new programs, property types and markets in 2019. Next year will be another competitive one with sporadic deal flow and aggressive competition for any deals with cash-flow potential. There will also be tougher competition from non-institutional lenders. Many life companies will provide different buckets of capital to offer a one-stop-shop in an effort to grab yield. More life company lenders are coming out with bridge-lite programs. They will look at light repositioning or replacing tenants to bring a property up to stabilized occupancy. Anticipate more life companies to pick up third-party production accounts. This allows them either to widen their product offerings or sell participations in their mortgages in order to increase their traditional loan production. Also, expect more construction-to-perm loans and there are even whispers of some life companies starting up CMBS lending arms.”
Conduit issuance was light again in October, with only 3 deals pricing for $2.9b, bringing the YTD conduit total to $31.47b across 34 deals. The 3 deals priced relatively close to one another even though their top line metrics varied somewhat which would indicate varying credit quality. The AAA LCF priced in a range of S+84-87, with the AA- spread ranging from S+120-125 and the A- spread ranging from S+170-180. Secondary spreads finally reversed course after months of tightening and ended October at the wides of the month, as macro pressures and heavier dealer inventories took their toll. On the month, AAA LCF spreads widened 10-12bps, with AA- and A- bond both out around 20bps. BBB- underperformed this month, with spreads wider by 20-30bps. Away from the conduit space, 5 SASB deals, all floating rate, priced for a total of $3.96b and two CRE CLO’s priced totaling $1b. New issue is expected to pick up in November, as dealers look to get deals out the door before the holidays get into full swing.
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