Commercial Mortgage Bonds Decline as $9B Weighs Down Market

by 17 May 2012

(Bloomberg) -- Commercial-mortgage securities are slumping as a flood of bonds dumped on the market during the past month weighs on values amid mounting concerns that Europe’s debt crisis can’t be contained.

Relative yields on top-ranked debt tied to property loans have climbed 14 basis points in May to 200 basis points more than Treasuries, the highest level in more than a month, according to a Barclays Plc index. Bonds that are perceived to be of lower quality were pressured the most, Credit Suisse Group AG analysts said in a report today.

The Federal Reserve Bank of New York and UBS AG sold $9 billion in bonds tied to skyscrapers, shopping malls and hotels, in two auctions, starting with the district bank’s record sale on April 26. Demand for the debt exceeded expectations, even while the deluge of lower-rated securities has reduced values, according to Credit Suisse.

“Macro concerns may be the initial impetus for the move over the past several days,” said the New York-based analysts led by Roger Lehman. “Renewed concerns over European sovereign risk, and specifically the future of Greece staying in the euro zone, have been a factor as has JP Morgan’s announced losses from derivative trading,” the analysts wrote. “Pressure has been exaggerated by the new supply.”

Investors “appear” to have started to sell bonds from the so-called Max deals, two collateralized debt obligations assumed by the Fed in the rescue of American International Group Inc. and held in its Maiden III LLC portfolio, according to Credit Suisse.

Read full story from Bloomberg

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