(^46) International Financing Review March 7 2020
Mortgage rates have fallen in recent
weeks in step with US Treasury yields on
deepening fears about a sharp economic
slowdown due to rising coronavirus cases
worldwide.
4HISûHASûCAUSEDûSPREADSûONûlXED
RATEû
agency MBS to widen about 20bp over the
past three weeks on an option-adjusted
basis, or factoring out prepayment risks,
according to an index compiled by
Bloomberg and Barclays.
The move among private-label RMBS has
BEENûANYWHEREûFROMûmATûTOûBPûWIDERû
depending on their credit rating, according
to analysts and investors.
While a sharp drop in mortgage rates
BENElTSûHOMEOWNERSûWHOûCANûLOCKûINû
SAVINGSûBYûRElNANCING ûITûCREATESûAû
headache for bond investors that face
losses due to being paid back faster
from an acceleration in prepayment
rates.
Losses from a surge in prepayment risk
are most felt in MBS backed by the US
GOVERNMENTSûTHREEûMORTGAGEûlNANCEû
agencies – Fannie Mae, Freddie Mac and
Ginnie Mae – because the prepaid loans are
removed by securitised pools once
RElNANCINGSûCLOSE
The pace in pre-payments among privately
issued MBS is less responsive to changes in
mortgage rates because loans that secure
these bonds are often made to borrowers with
PATCHIERûCREDIT ûWHOûMAYûNOTûABLEûTOûRElNANCEû
as easily as their prime counterparts.
“MBS will have to manage a wave of
RElNANCINGûTRIGGEREDûBYûTHEûMOVEûTOûLOWERû
rates,” said Steven Abrahams, Amherst
Pierpont head of securitisation and
investment strategy. “Prepayment risk
should keep pushing MBS spreads wider.”
In comparison, spreads on US high-grade
corporate bonds have widened about 30bp,
while the spreads on junk bonds blew out to
over 500bp at the end of February before
retracing to 475bp on Wednesday, which
was about 120bp wider than three weeks
earlier, according to Bank of America
indices.
MODERATE ISSUANCE
!ûSUBSTANTIALûPICK
UPûINûRElNANCINGûSHOULDû
lift supply activity in the securitisation
market in the coming months.
Supply in mortgage-backed securities in
THEûlRSTûQUARTERûHASûBEENûRUNNINGûBELOWûTHEû
levels seen for the same period in 2019,
according to JP Morgan.
Agency MBS gross issuance has totalled
US$234bn through to the end of last week,
while private RMBS gross supply has
reached US$25bn, it said.
TUMBLING YIELDS
Benchmark 10-year Treasury yields set a
series of record lows below 1% last week,
exerting pressure on mortgage rates.
Interest rates on 30-year mortgages, the
most widely held type of US home loan, fell
to 3.29% last week from 3.45% the week
before, Freddie Mac said. This was the lowest
level since Freddie began tracking this rate
nearly 50 years ago.
The Mortgage Bankers Association’s US
RElNANCINGûACTIVITYûINDEXûJUMPEDûûTOûAû
seven-year high in the week ended
February 28.
If the 30-year mortgage rates fall near 3%,
it would be compelling for nearly all 30-year
BORROWERSûTOûCONSIDERûRElNANCINGûTHEIRû
existing loans, according to Wells Fargo
analysts.
The dramatic shift in outlook on pre-
payments has broadly hurt mortgage-backed
bonds, but if some lower-credit borrowers
CANûRElNANCEûATûTHESEûROCK
BOTTOMûRATES û
this might bolster riskier private RMBS
issues such as those backed by non-
performing mortgages.
“There is a complete sea change in
prepayment expectations, but it could be
BENElCIALûTOûNON
AGENCYû2-"3ûBONDHOLDERSû
because credit quality may improve,” said
Sam Dunlap, Angel Oak Capital Advisors’
CHIEFûINVESTMENTûOFlCERûOFûPUBLICûSTRATEGIES
MGM, BLACKSTONE PLAN US$1.9bn
CASINO CMBS
MGM Growth Properties and BLACKSTONE
plan this week to raise US$1.9bn in the US
commercial mortgage-backed securities
market to fund the purchase of two MGM
casinos in Las Vegas, MGM Grand and
Mandalay Bay.
This SASB offering will match the size of
the CMBS sale from Blackstone in
December, which marked the biggest-ever
single-asset, single-borrower CMBS
transaction linked to a casino, which was
another MGM property in Las Vegas – the
Bellagio.
The 10-year Triple A note on that deal, BX
Trust 2019-OC11, cleared at swaps over
110bp for a yield of 2.866%.
But the upcoming MGM-Blackstone
OFFERINGûCOULDûBEûAûlRMERûTESTûOFûINVESTORû
appetite as coronavirus fears start to impact
on travel and hotel occupation.
And with spreads on the 10-year
investment-grade conduit CMBS widening
10bp–18bp to between 90bp and 260bp over
the last month, according to JP Morgan, it
US ASSET-BACKED SECURITIES
BOOKRUNNERS: 1/1/2020 TO DATE
Managing No of Total Share
bank or group issues US$(m) (%)
Excludes MBS.
Source: Refinitiv SDC code: F14
1 JP Morgan 18 6,941.82 12.4
2 Wells Fargo 18 4,211.03 7.5
3 Citigroup 18 3,862.71 6.9
4 Barclays 13 3,536.84 6.3
5 BofA 14 3,280.73 5.9
6 RBC 11 2,933.17 5.3
7 Deutsche Bank 14 2,785.48 5.0
8 MUFG 12 2,683.14 4.8
9 Credit Suisse 10 2,578.61 4.6
10 TD Securities 10 2,418.97 4.3
Total 93 55,848.76
GLOBAL STRUCTURED FINANCE IN US$
BOOKRUNNERS: 1/1/2020 TO DATE
Managing No of Total Share
bank or group issues US$(m) (%)
Including securitisations (Euro, foreign, global and domestics, excluding
CDOs) and PFI bonds.
Source: Refinitiv SDC code: B16b
1 JP Morgan 39 16,952.03 13.2
2 Wells Fargo 42 15,819.01 12.3
3 Credit Suisse 33 13,252.00 10.3
4 Citigroup 37 10,885.79 8.5
5 BofA 34 10,751.97 8.4
6 Morgan Stanley 24 10,075.05 7.8
7 Goldman Sachs 35 9,043.75 7.0
8 Barclays 28 7,067.52 5.5
9 Deutsche Bank 29 5,957.58 4.6
10 Nomura 21 4,390.27 3.4
Total 212 128,571.78
STRUCTURED FINANCE – ALL INTL ISSUERS
BOOKRUNNERS: 1/1/2020 TO DATE
Managing No of Total Share
bank or group issues US$(m) (%)
Includes securitisations, PFI bonds, self-funded issues and credit-linked
notes. Excludes US global ABS/MBS and CDOs.
Source: Refinitiv SDC code: J10c
1 Goldman Sachs 20 4,958.06 10.0
2 Wells Fargo 19 4,784.00 9.7
3 Barclays 22 4,238.69 8.6
4 JP Morgan 20 4,069.01 8.2
5 Credit Suisse 20 4,037.53 8.1
6 BofA 19 3,957.19 8.0
7 Citigroup 18 3,742.72 7.6
8 Deutsche Bank 18 2,863.36 5.8
9 Nomura 16 2,489.39 5.0
10 Morgan Stanley 11 2,238.47 4.5
Total 94 49,552.67
GLOBAL CDOs
BOOKRUNNERS: 1/1/2020 TO DATE
Managing No of Total Share
bank or group issues US$(m) (%)
Including Euro, foreign, global, US domestics.
Source: Refinitiv SDC code: B12
1 JP Morgan 2 2,700.68 17.0
2 BNP Paribas 4 1,448.73 9.1
3 Jefferies 3 1,039.90 6.6
4 Barclays 2 955.38 6.0
5 Citigroup 2 921.03 5.8
6 Credit Suisse 1 461.02 2.9
7 RBC 1 438.50 2.8
8 Morgan Stanley 1 399.06 2.5
9 Natixis 1 261.30 1.6
Total 35 15,850.42
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