After greater-than-expected acceleration during the start of 2019, commercial mortgage spreads in Canada have steadily declined, according to CMLS Financial.
“This compression in spreads may not be a complete surprise to commercial mortgage participants, as the increase in spreads we experienced in early 2019 was perhaps a little overdone,” the report, which covered the previous quarter, stated.
Decreases of approximately 5 bps every month during Q2 2019 were observed, the report added.
As of the end of the quarter, top quality assets were priced at the 150-170 bps range above Government of Canada bond yields for 5-year products, and at the 160-180 bps range over GOC for 10-year deals.
“While competition remains strong from the supply side – particularly for higher quality loans – lenders appear to be exhibiting patience and are being selective with their capital deployment.”
“The volatility we saw at the end of 2018 and Q1/2019 in commercial mortgage spreads over BBB-rated corporate spreads stabilized somewhat in Q2,” with both commercial mortgage and corporate spreads over GOC exhibiting downward movement during the quarter.
As for multi-family CMHC-insured loans, spreads over GOC were largely static for 5-year (around 85 bps) and 10-year deals (100 bps) alike.
Measuring in terms of spread over Canada Mortgage Bonds, 5-year multi-family CMHC-insured loans were quoted to be in the 50-55 bps range during Q2. The 10-year terms were trading at the 50-60 bps range over the same period.
“A common theme throughout Q2 was the very limited supply of capital for 10-year insured loans.”