Last month we wrote that the Federal Reserve appeared to be becoming more selective when choosing legacy CMBS for its Talf programme.
Scratch that.
The Fed accepted all of the 59 bonds that applied for the programme in its latest round of subscriptions. Last month it accepted 83 of the applicant bonds, and excluded three — a rejection rate of about 3.5 per cent. In July it accepted 35 bonds and rejected just one — the lonely JPMCC 2007-LDPX.
As we’ve noted before, however, the Fed’s criteria for accepting and rejecting this CMBS is all a bit of a mystery. What’s more, given the reduction in the amount of bonds submitted in the latest subscription, that uncertainty seems to be feeding into the market. The fact that all of the bonds were selected might also suggest that investors themselves are becoming more careful in terms of what CMBS they submit as collateral for the Talf.
Here are some thoughts from Structured Finance News:
Bank of America Merrill Lynch analysts believe the lack of rejections this month is a positive for the potentially TALF-eligible sector. It could also offer the market some comfort regarding purchases for the next cycle.
But, the continued lack of clarity about the Federal Reserve’s risk criteria and uncertainty about a bond’s acceptability have caused some investors to shy away from TALF this month, or at least limit the scale of the bonds submitted, according to analysts.
Although there were 59 distinct bonds accepted as collateral this month, 25 of these had been previously submitted as well as accepted by the New York Federal Reserve. This leaves just 34 new bonds added to the acceptance list.
Related links:
Barclays urges Fed to detail Talf bid acceptance process – HousingWire
The Fed’s enigmatic CMBS portfolio, an update – FT Alphaville