TOP LINE
Investor balance sheets are full
Investor balance sheets are full — Investor spreads on agency—i.e., Fannie Mae, Freddie Mac, and Ginnie Mae—project loan commercial mortgage-backed securities (CMBSs) have been under pressure in recent weeks (see gray and black lines in chart below). As noted in our July 8 Talking Points, that trend seems likely to continue for the foreseeable future.
Investor balance sheets continue to grow, with the current tally amounting to over $14 billion of agency CMBS (gold line in chart). Indeed, primary broker-dealer positions in agency CMBS are near the all-time highs reached just a month ago.
There is a positive (albeit imperfect) relationship between Wall Street’s desire to own loans and investor spreads on new-issue CMBS. Historically, when dealers found it increasingly difficult to place paper to end accounts, they were forced to hold onto the securities, incurring hedging, capital, and opportunity costs in the process. Holding onto securities, in turn, often created concentration-limit issues requiring them to forego other investment opportunities, given limited capital.
While recent months have been characterized by tepid optimism and spread compression, we fear this enthusiasm may have run its course, at least for a while. In recent weeks, we have heard more anecdotes that end buyers are slowing down, thereby putting the onus on primary broker-dealers to buy new-issue CMBS. Per the chart above, primary broker-dealers are already full; this tends to mean that every marginal security needs to be sold at a wider spread to compensate for lack of interest or liquidity.
FROM THE DESK
Agency CMBS — It was a quiet week in agency CMBS. DUS and Ginnie Mae project-loan spreads are marginally wider, week-over-week (WoW). Over the past month, however, we’ve experienced a fairly drastic spread-widening of approximately 14 basis points on Ginnie Mae permanent loans.
Municipals — AAA tax-exempt yields were lower across the yield curve, WoW. Primary new issuance was elevated again last week, but deals were well received by investors due to the large amount of money flowing into the market.
Municipal bond funds had a third straight week of inflows: $891 million came into funds last week. The high-yield fund subset also continued its positive streak—now at 13 straight weeks—with $364 million of inflows.
In addition, we saw the most multifamily new issues price in a single week since mid-December 2023. The multifamily issues consisted mainly of two- to four-year, cash-collateralized bonds and 15- to 19-year Fannie Mae MBS-enhanced, tax-exempt bonds (M-TEB). A Fannie Mae MBS-enhanced taxable bond (M-TMB) also came to market last week—the first M-TMB to price since late 2023. The latest M-TMB priced at a 5.42% coupon; the same issuer also had an M-TEB at the same maturity price last week at a 4.40% coupon.
Economic Calendar for the Week Ahead
| Indicator | Release | Period | Consensus | Prior |
|---|---|---|---|---|
| Initial Jobless Claims | 07/25/24 | 20-Jul | 238k | 243k |
| Continuing Claims | 07/25/24 | 13-Jul | 1861k | 1867k |
| Personal Income | 07/26/24 | Jun | 0.4% | 0.5% |
| Personal Spending | 07/26/24 | Jun | 0.3% | 0.2% |
| Core PCE Price Index YoY | 07/26/24 | Jun | 2.5% | 2.6% |
| U. of Mich. Sentiment | 07/26/24 | Jul F | 66.4 | 66 |
| U. of Mich. 1 Yr Inflation | 07/26/24 | Jul F | — | 2.9% |
Summary of Global Fixed-Income Markets
The information contained herein, including any expression of opinion, has been obtained from, or is based upon, resources believed to be reliable, but is not guaranteed as to accuracy or completeness. This is not intended to be an offer to buy or sell or a solicitation of an offer to buy or sell securities, if any referred to herein. Lument Securities, LLC may from time to time have a position in one or more of any securities mentioned herein. Lument Securities, LLC or one of its affiliates may from time to time perform investment banking or other business for any company mentioned.
