Here’s your latest dose of Fed Talf CMBS-buying mystery.
The Fed accepted 81 of the legacy CMBS bonds submitted in the latest (Oct. 21) Talf subscription, and rejected five — an acceptance rate of 94 per cent. That’s in contrast to September, when the Fed accepted all of the 59 bonds submitted, and August, when it accepted 83 of 86 (97 per cent), and July when it accepted all but one of the 36 bonds submitted (97.2 per cent).
It also rather smashes last month’s thesis that investors may be becoming more selective in which CMBS bonds they submit for the Talf — hence the 100 per cent acceptance rate in September. Remember all of these bonds are, per the Talf’s criteria, triple-A rated, but the Fed’s inscrutable rejections have thrown quite a bit of confusion into the market, with some analysts calling for the central bank to clarify its selection criteria.
And this month’s subscription appears no different.
In particular there’s one rejected bond — BACM 2007-1 Class A3 (CUSIP #059497AV9) that seems especially mysterious given that the deal’s A4 tranche was accepted by the Talf before. As the analysts at Bank of America Merrill Lynch put it:
“We think the market will be a little surprised at the rejection list this month,” Bank of America/Merrill Lynch analysts said. This is both in terms of the number of bonds rejected and some of the bonds on the list, they said.
Analysts are still urging the NY Fed to release more information, most important are the reasons for the rejection of bonds.
According to BofA/Merrill, the most surprising of the rejected collateral was BACM 2007-1 Class A3. Although this particular tranche has not been put up for subscription before, according to analysts, the A4 tranche was accepted in both the August and September cycles.
“There does not appear to be one trigger that is used for the determination of acceptable collateral,” BofA/Merrill analysts said.
Fed? More detail? Please?
Related links:
Barclays urges Fed to detail Talf bid acceptance process – HousingWire
The Fed’s enigmatic CMBS portfolio, an update – FT Alphaville