CMBS trading uptick will likely tighten spreads

Spreads in the commercial mortgage-backed securities space are expected to tighten, as positive news infiltrates the market despite a spate of recent negative headlines. Barclays Capital said in a note to investors Friday that secondary trading volume picked up substantially this week, up to $1.9 billion from $1.2 billion last week, “with most of the activity concentrated in the duper space.” Although recent spreads are widening due primarily to global macroeconomic concerns, the research firm commented that the AJ sector is attractive for investors, as it lagged other sectors slightly during the most recent wave of tightening. Most 2007 AJs are trading in the high-500s area, with some better names quoted in the mid-500s, Barclays said. “As more positive news of improving property fundamentals and better credit performance reaches the market, we expect a renewal of interest in this space to result in spread tightening,” the research note said. However, it noted that this trade should be viewed as a longer-term investment. Analysts at Barclays Capital reported Tuesday that they expect investors to flock to the CMBS 2.0 market in 2011. CMBS 2.0 refers to commercial securities issued after the financial crisis. The analysts said the securities market could reach as high as $35 billion during the year and that they expect investors to maintain a healthy appetite for riskier deals. The CMBS 2.0 market recently experienced its first delinquency. The U.S. Geological Survey Regional headquarters in Austin, Texas, which is backed by a $5.2 million loan, was 30 days past due as of last week. Find out more about the market for CMBS 2.0 in the upcoming edition of HousingWire magazine. Take a sneak preview here. Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR.