CMBS has long been speculated about as the next mortgage-backed penny to drop. Until recently, though, prices have -relatively speaking – held up quite well.
Here, however (HT Calculated Risk) is the latest CMBX chart from Markit (AA series 5):
From a spread of 475bps at the end of May, it’s now coming close to 1000bp. The particularly steep rise in the spread – in mid-August – occurred after Markit announced it wouldn’t be constituting a new index – there simply wasn’t enough issuance.
Here’s the spread of the double-B tranche of the CMBX:
Nearly 3200bps!
Loser: Lehman Brothers.
Little wonder indeed, that the bank is having trouble offloading $40bn of CMBS assets. As the FT reported last week:
The troubled investment bank wants to sell the assets either as a whole or in pieces but added there was a gap between Lehman’s perception of the value of the portfolio and that of buyers.
Here’s a guess: the buyers want to use the CMBX indices as a proxy for worth. Lehman don’t. There’s the yawning gap. If Lehman did sell given where the indices are now… the writedown could be huge.
Lehman Brothers, Ken Rogoff is watching you.
Winner? Lahde Capital. Again. Circa March:
If the commercial real estate market was a beach ball, picture my arm holding the ball. If I take my arm away, everyone knows that ball will fall to the ground. However, many foolishly believe that somehow if you take cheap financing (my arm) away, the ball will remain afloat. Risk premiums for this type of debt have skyrocketed as exhibited by the CMBX. If you dramatically increase the risk premium for an asset class, especially one that is so heavily financed, the value of that asset class must fall. End of story.
Related links
Sic transit gloria Cheesegrater – FT Alphaville
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