Commercial mortgage-backed securities research firm Trepp Analytics said spreads on legacy super senior bonds ended flat to a basis-point wider. Meanwhile, CMBS 2.0/3.0 ‘AAA’ paper spreads were a basis point higher.
“There was nothing terribly black or white about the CMBS market on Monday,” Trepp said. “In a session that satisfied neither bulls nor bears, spreads barely moved to begin the new week. Currently, investors seem content to wait out Federal Reserve chairman Ben Bernanke’s upcoming speech in [Jackson Hole] Wyoming this week before making any commitments.”
The much-awaited Fed move is QE3 – or another round of quantitative easing. Bernanke may indicate further support for additional economic stimulus in the speech. Financial markets are slower as a result. And it’s not just CMBS; U.S. stock futures trades are also nearly unchanged, according to a MarketWatch article.
Capital Economics suggests the Fed sent a strong signal in its latest Federal Open Market Committee meeting minutes that additional stimulus is required.
“Given the unexpectedly strong signal in the minutes last week that QE3 is coming fairly soon, we would expect Bernanke to reinforce the case for more action,” Capital Economics wrote when discussing its expectations for the Fed Chair’s Jackson Hole speech.
Wall Street, for its part, is having a different reaction.
“We do not expect Chairman Bernanke’s speech on Friday morning to shed much light on the near-term tactics of monetary policy beyond last week’s FOMC minutes,” said Jan Hatzius with Goldman Sachs (GS) Global Economic, Commodities Strategy Research.
Instead, the Goldman Sachs research team is waiting to see if Bernanke breaks new ground by discussing the Fed’s longer-term strategy.
“The most obvious way to break new ground would be to open the door to unconventional easing… until the economy has regained a bigger share of the lost output and/or employment,” Hatzius wrote.
Goldman analysts previously outlined what this next potential economic stimulus may look like.
“The August FOMC minutes hint at growing appetite for this approach, saying that an extension of the rate guidance … might be particularly effective if done in conjunction with a statement indicating that a highly accommodative stance of monetary policy was likely to be maintained even as the recovery progressed,” Hatzius added.
