Rally in CMBS Spreads Continues: Trepp
The market for commercial-backed securities (CMBS) experienced a rally last week as spreads narrowed following new tax rules for real estate mortgage investment conduits (REMICs). Spreads, the difference in yield between a bond and its benchmark (here the swap rate), continued a slow but steady rally Tuesday, according to CMBS and commercial mortgage information provider Trepp. Ten-year triple-A spreads came in anywhere from 5 to 20 bps on the day, bringing 10-year triple-A spreads tighter by 75 to 80 bps from the end of August, Trepp said. Narrower spreads indicate greater demand for CMBS bonds. At the same time, demand is also rising for ratings on CMBS, according to credit-rating agency Realpoint. The National Association of Insurance Commissioners (NAIC) recently voted to include Realpoint as an Acceptable Rating Organization, meaning US insurance companies can now use its CMBS ratings to calculate capital strength and required reserves. Realpoint said it evaluates each CMBS deal on a monthly basis, as riskier holdings require greater capital reserves at the insurance companies. "Our recognition by the NAIC was driven by strong investor support from the insurance industry," said Realpoint CEO Rob Dobilas in a statement. "This action by the NAIC, and the insurance industry as a whole, indicates that investors and regulators recognize that positive change in the ratings business is necessary to restore confidence in the structured-finance markets." Write to Diana Golobay.