Highlights from the year that was

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CMLS Financial released its in-depth November 2015 commercial mortgage commentary report, and these are the pertinent details.
 
“(The) November 2015 commentary discusses the impact of ongoing bond market volatility on the commercial mortgage market; looks at the continued widening of spreads on commercial mortgages, CMHC (Canada Mortgage and Housing Corporation) insured loans and the corporate credit market more generally; highlights a slowdown in senior unsecured debt issuance from 2014 highs; and more,” CMLS said in a release.
 
According to the report, global markets were volatile in the third quarter of 2015. As a result, the Bank of Canada may be forced to maintain current policy until manufacturing activity increases.
 
This has also impacted spreads.
 
“The increasingly attractive relative value of corporate credits vs commercial mortgages together with typical seasonal decline in lender availability is putting upward pressure on conventional mortgage spreads,” CMLS wrote. “Many lenders that remain active in the market have increased spreads and/or are restricted by floor rates still in play given the low interest rate environment.”
 
According to CMLS, commercial spreads on “high quality” assets are currently priced between 185 to 205 basis points (bps) for five-year deals. Ten-year deals, meanwhile, are priced between 200 and 220 bps, which represents a 15- to 20-bps increase over the prior quarter.
 
“Notwithstanding the incremental inch-up in commercial mortgage spreads year-to-date, borrowers can take comfort in the fact that all-in coupons remain at or near all-time lows,” CMLS writes. “On the other hand, credit spreads now make up 70% of the total mortgage coupon, up from 30% in December 2007, indicating risk now makes up the majority of investor returns.”
 
Spreads on CMHC loans, meanwhile, are up.
 
According to CMLS, spreads on new five and 10-year, multi-family CMHC insured loans are approximately 100 bps, which is up 20 bps (for five-year) and 10 bps (for 10-year), quarter over quarter.
 
“The increase in spreads is likely due to limited availability as balance sheet lenders and the Canadian Mortgage Bond allocations have either been filled or are close to being filled for the balance of 2015, with generally less availability of 5-year funds vs 10-year funds,” CMLS said.

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