This was sent to me today from Brad Anderson of Wells Fargo:
"The market saw significant tightening in CMBS AAA’s. The tightening was all due to secondary market trading, not new CMBS issuance. The tightening related to a positive September jobs report coupled with a major revision of the August report which also drove the 10-year U.S. Treasury up seven basis points. Some feel that the credit spread rally was exaggerated, since spreads have tightened considerably over the last few weeks. However, we should have price guidance on a TOP pool this week to get a better sense of pricing for new issuance. While good economic news has had a positive impact on CMBS credit spreads, it has had a negative effect on bond yields. It seems like all-in interest rates have maintained equilibrium over the past couple months due to what has become an inverse relationship between CMBS spreads and the U.S. Treasury index."
The bad news is that the all-in rate hasn't improved. The good news is that as more CMBS pools are priced, lenders have a better sense of breakeven and spreads will stabilize. With stable spreads borrowers have a sense of what their financing cost is likely to be over a 3 - 6 month period and the real estate markets will be better able to factor in the cost of capital when valuing deals.