The lenders plan to sell the bonds, linked to 123 properties spanning the U.S. from Manhattan to Riverside, California, as soon as next week, according to people familiar with the deal who declined to be identified because terms aren’t public. Wall Street is planning as much as $8 billion in deals for January, the highest monthly volume since Dec. 2007, according to Deutsche Bank AG.
Banks are selling off commercial mortgages accumulated during the fourth quarter as investor demand for risky assets surges with the Federal Reserve holding interest rates at almost zero for more than four years. The debt got a boost yesterday after lawmakers reached an agreement to avert tax increases on most Americans, with the relative yield on a benchmark issue offered by Goldman Sachs Group Inc. and Royal Bank of Scotland Group Plc in 2007 narrowing 15 basis points to 123 basis more than the benchmark swap rate, according to Stephen Schwartz, who trades the debt at RBC Capital Markets in New York.
“CMBS joined in the significant rally seen across risk markets on the back of the fiscal cliff deal,” Schwartz said. “With more policy risk on the immediate horizon, increased volatility in broader markets is anticipated. However, given the strong technical tone underlying CMBS, volatility in this sector should be reduced.”
The legislation passed this week doesn’t address spending cuts or the debt ceiling, meaning U.S. politicians are likely headed for battle during the next two months.
Top-ranked securities linked to commercial mortgages are yielding 103 basis points, or 1.03 percentage point, more than Treasuries, according to a Barclays Plc index. The spread fell to 87 basis points on Dec. 14, the lowest since at least 2007, before climbing as Congress and President Barack Obama sparred over a budget compromise. The spread was 247 basis points a year ago, the index shows.
“The markets are starting off with a strong outlook, but there is a lot less room for error than in prior years,” Schwartz of RBC said.
Sales of bonds tied to shopping malls, skyscrapers and hotels are poised to climb 50 percent to $60 billion in 2013 as yield-starved investors chase bonds tied to everything from commercial real estate to speculative-grade companies. Sales of junk bonds in the U.S. market were a record $354.3 billion last year, according to data compiled by Bloomberg.
The CMBS market is recovering after shutting down when credit markets froze in 2008, Bloomberg data show. A record $232 billion was sold in 2007, the data show.
Late payments on commercial mortgages contained in bonds climbed to records this year as property owners that piled on debt during the boom failed to find financing for maturing loans, though the rate has fallen in the past six months, according to Trepp LLC. The delinquency rate was unchanged last month at 9.71 percent, the New York-based commercial-mortgage data provider said in a statement today.
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