The Wall Street Journal-20080118-Latest Concern- Commercial-Mortgage Bonds- Investors Concerned About Refinancing Of Some Major Projects
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Latest Concern: Commercial-Mortgage Bonds; Investors Concerned About Refinancing Of Some Major Projects
Worries about the health of the market for commercial-mortgage bonds gripped investors, sending a derivative index based on those bonds into a tailspin.
The triple-B-minus slice of the Markit CMBX 4 series, which is based largely on deals from early 2007 through the summer of last year, widened by 1.75 percentage points, said Alex Pritchartt, derivatives trader at UBS.
Investors are concerned about "the refinancing of commercial mortgage deals," Mr. Pritchartt said. "In general, there is more concern about the quality of credit."
The CMBX -- the index created to track the performance of the commercial mortgage bond market -- was introduced in early 2006. It is based on the bonds of 25 commercial mortgage-backed deals.
There is a "foreboding about the state of the economy and people are expecting more negative press about this sector," said Derrick Wulf, portfolio manager at Dwight Asset Management in Burlington, Vt.
The Wall Street Journal yesterday reported that developer Ian Bruce Eichner defaulted on a $760 million loan from Deutsche Bank AG after efforts to refinance the loan failed. And New York real-estate magnate Harry Macklowe is also struggling to refinance a $1.2 billion loan, and is trying to sell the General Motors Building in midtown Manhattan to raise the money.
The problems in the market center mainly on the ability of borrowers to obtain acceptable refinancings of maturing bonds, given the "current contraction in real estate capital markets," Fitch Ratings said in a report on the market's outlook for this year.
The new-issue market is dormant, with the number of new deals sold plunging 43% in last year's second half as the fallout from the problems in the subprime residential-mortgage market led to a broad credit crunch.
The commercial mortgage market woes come even as delinquency rates remain low -- in contrast to developments in the residential-mortgage market. According to Fitch, delinquency rates in the commercial- mortgage market stood at 0.28% last year.
This year could be different, however, with delinquencies doubling -- or even tripling -- by the end of the year, according to Fitch.
"Additional economic stress to property cash flows, balloon defaults and the decrease in new origination volume are likely to contribute to the increase in Fitch's loan delinquency index," said Michelle Bayard of Fitch in a release yesterday.
Treasury-Bond Prices Soar
Treasury-bond prices surged, as miserable regional manufacturing data added to worries about U.S. growth and Federal Reserve Chairman Ben Bernanke reiterated the need for deeper rate cuts to jump-start the economy.
The 10-year note rose 20/32 point, or $6.25 per $1,000 face value, to 105 for a yield of 3.639%, down from the previous day's 3.714%. The 30-year bond jumped 1 7/32 to 112 14/32 to yield 4.253%. Meanwhile, the two-year issue rose 4/32 to 101 18/32, yielding 2.432%.
-- Min Zeng
Next Week's Auctions
The Treasury plans to raise $14 billion in new cash next week with the sale of short-term bills and inflation-indexed securities.
Details of the offerings:
-- The Treasury plans to sell $40 billion of three-month and six- month bills Tuesday to redeem $34 billion in maturing securities and raise $6.00 billion new cash. (This regular weekly auction is usually on Mondays, but is delayed a day due to Martin Luther King Jr. Day on Monday.)
The bills will be dated Jan. 24 and mature April 24, 2008, and July 24, 2008, respectively. The Cusip numbers ares 912795D99 and 912795F63.
Noncompetitive tenders for the bills, available in minimum denominations of $1,000, must be received by noon EST Tuesday, and competitive tenders by 1 p.m.
-- The Treasury on Thursday plans to sell $8 billion in 20-year Treasury inflation-protected securities, or TIPS, to raise new cash.
The securities will be dated Jan. 15, 2008; settle Jan. 31, 2008; and mature Jan. 15, 2028. The Cusip number is 912810PV4.
Noncompetitive tenders for the securities, available in minimum denominations of $1,000, must be received by noon Thursday, and competitive tenders by 1 p.m.
