Wall Street dealers are selling commercial-mortgage bonds with the widest spread this year as the European debt crisis and JPMorgan Chase & Co.’s trading loss rattles markets.
Goldman Sachs Group Inc. (GS:US), Citigroup Inc. (C:US) and Jefferies Group Inc. (JEF:US) plan to sell top-ranked debt that matures in 9.19 years to yield 140 basis points more than the benchmark swap rate, according to a person familiar with the transaction who declined to be identified because terms aren’t public. That compares with 120 basis points on similar securities issued by UBS AG and Barclays Plc last month, according to data compiled by Bloomberg. The three New York-based banks initially marketed the securities to yield 115 basis points more than swaps.
Investors are demanding higher yields on bonds tied to shopping malls, skyscrapers and hotels as Europe’s worsening fiscal turmoil and possible regulatory fallout from JPMorgan’s trading loss, potentially constraining lending. Volatile spreads, which erode banks’ profit margins on new deals, may inhibit originations, Wells Fargo & Co. analysts said in a report yesterday.
“The upside case for CMBS issuance in 2012 likely was taken out in the past week,” said analysts led by Marielle Jan de Beur, who is based in New York. “Increased caution about pricing a deal in a shaky market, an intensified skepticism toward synthetic hedging instruments and a reinvigorated push for market regulation,” may hinder issuance, the analysts said.
Wells Fargo forecasts $25 billion of commercial-mortgage bond issuance this year, with $9.6 billion issued to date. Deutsche Bank AG and Cantor Fitzgerald LP plan to sell about $933 million of the debt today with a top-rated class maturing in about 9.73 years expected to pay a 135 basis-point spread, a person familiar with that sale said.
The Federal Reserve Bank of New York and UBS auctioned $9 billion of commercial-mortgage bonds created during the boom years in the past month, creating an additional drag on values, Credit Suisse Group AG said in a report yesterday.
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