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March 11, 2008


CMBS BBB- Spread: Now Over 1500 Basis Points

I’ve decided to update this chart only for every 5% jump in the spread (this is a kind of sick joke). What can you say about the state of the market? Store plenty of canned food, bottled fruit, candles, batteries, shotgun shells, and don’t forget the crackers.


Click to enlarge (CMBS BBB- Spread over the 10-year Treasury)

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This entry was posted on Tuesday, March 11th, 2008 at 6:13 pm (utc+8) and is filed under Bonds.

6 Responses to “CMBS BBB- Spread: Now Over 1500 Basis Points”

  1. Andrew said:
    March 12th, 2008 at 2:59 am

    What are the practical implications of this Chairman?

    In Australia the cost of funding for the banks is soaring causing my loans to go up faster than the RBA set cash rate which is also heading north, otherwise I’m not aware of what risks are out there.

    And what type of canned food should we stock?

  2. amirinator said:
    March 12th, 2008 at 3:26 am

    CM,

    Does this mean interest rates are ~ 15% for commercial mortages?!?!

  3. C. Maoxian said:
    March 12th, 2008 at 6:38 am

    @Andrew: I guess it means that if you’re holding this paper it’s plunging in value and if you’re a low-rated borrrower you’re paying through the nose to raise money. Forget the canned food, just stock “Uncle Ben’s” brand of anything.

    @amir: No, it means the spread between the 10-year Treasury note and this junky (BBB-) commercial mortgage-backed securities index is over 15% … the T-Note yields around 3.5% so this CMBS index is yielding over 18%. Wild.

  4. amirinator said:
    March 12th, 2008 at 7:54 am

    CM-

    Which leads me to believe that with such a huge yield for the CMBS BBB bonds that the value of the bonds is plummeting..conversely..the value of those mortgages is dropping, i.e., homes is dropping? Is my logic correct?

  5. C. Maoxian said:
    March 12th, 2008 at 8:08 am

    amir: Right, the bonds are plummeting in price … remember these are commercial mortgage-backed, not residential. I guess what’s driving the market is a fear that the loans will go bad… they haven’t necessarily gone bad yet, they’re just expected to… the market is all about expectations.

  6. amirinator said:
    March 12th, 2008 at 8:15 am

    Funny..they must have over developed all those strip malls to service all those over supplied homes that were built :>)

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