Comments on: Meltdown http://acrossthecurve.com/?p=2122 A daily bond market chronicle Wed, 08 Sep 2010 04:43:57 +0000 http://wordpress.org/?v=2.9.1 hourly 1 By: Flation, From “In-” To “De-” | Risk Watchdog http://acrossthecurve.com/?p=2122&cpage=1#comment-4592 Flation, From “In-” To “De-” | Risk Watchdog Tue, 02 Dec 2008 18:45:55 +0000 http://acrossthecurve.com/?p=2122#comment-4592 [...] unload their toxic junk onto the government. Spreads on asset-backed securities have consequently blown out across the board, including for AAA-rated commercial mortgage backed securities and junk bonds of all kinds, as [...] [...] unload their toxic junk onto the government. Spreads on asset-backed securities have consequently blown out across the board, including for AAA-rated commercial mortgage backed securities and junk bonds of all kinds, as [...]

]]> By: Red http://acrossthecurve.com/?p=2122&cpage=1#comment-3988 Red Wed, 19 Nov 2008 18:40:55 +0000 http://acrossthecurve.com/?p=2122#comment-3988 This article on the FT blog has committed the worst blogging faux pas. I'd write them an email. http://ftalphaville.ft.com/blog/2008/11/19/18418/the-cmbs-crash/ This article on the FT blog has committed the worst blogging faux pas. I’d write them an email.

http://ftalphaville.ft.com/blog/2008/11/19/18418/the-cmbs-crash/

]]> By: es http://acrossthecurve.com/?p=2122&cpage=1#comment-3986 es Wed, 19 Nov 2008 17:51:19 +0000 http://acrossthecurve.com/?p=2122#comment-3986 David - many B-Piece buyers resold their positions in CDOs or otherwise, thus they grew complacent. plus as mentioned elsewhere, competition was fierce for their position in the capital stack. David -
many B-Piece buyers resold their positions in CDOs or otherwise, thus they grew complacent. plus as mentioned elsewhere, competition was fierce for their position in the capital stack.

]]> By: es http://acrossthecurve.com/?p=2122&cpage=1#comment-3985 es Wed, 19 Nov 2008 17:48:22 +0000 http://acrossthecurve.com/?p=2122#comment-3985 y81 - check out "PCM" its a nice little closed end fund. in 2006/2007 they mostly bought 30% AAAs. before that they bought below AAA. main risk is if no funding is available for maturing debt over the next 3 years. but at the current prive, i think you are well compensated at a 15% annual dividend y81 – check out “PCM”
its a nice little closed end fund. in 2006/2007 they mostly bought 30% AAAs. before that they bought below AAA.
main risk is if no funding is available for maturing debt over the next 3 years. but at the current prive, i think you are well compensated at a 15% annual dividend

]]> By: es http://acrossthecurve.com/?p=2122&cpage=1#comment-3984 es Wed, 19 Nov 2008 17:44:57 +0000 http://acrossthecurve.com/?p=2122#comment-3984 the main driver (besides the two loans defaulting) is that you can buy resi bonds at 15 to 20% loss adjusted returns. what that means is that under the worst expected loss scenarios, a buyer of a resi bond would still expect a 15 to 20% yield. its pretty hard for compeating poducts to trade richer for long. the main driver (besides the two loans defaulting) is that you can buy resi bonds at 15 to 20% loss adjusted returns. what that means is that under the worst expected loss scenarios, a buyer of a resi bond would still expect a 15 to 20% yield.
its pretty hard for compeating poducts to trade richer for long.

]]> By: y81 http://acrossthecurve.com/?p=2122&cpage=1#comment-3976 y81 Wed, 19 Nov 2008 14:17:33 +0000 http://acrossthecurve.com/?p=2122#comment-3976 I used to do a lot of work for B piece buyers (though not the buyers on these JP deals). In general, they were motivated by a combination of fierce competition ("too much money chasing too few deals"), plus the fact that they were willing to own the real estate for a while if the rosy scenario didn't play out. Now I guess they will have the chance to act on that willingness. I have to agree with Dark Space--the current CMBS pricing makes no sense. Unfortunately, the market can stay irrational longer than you can stay solvent. Still, does anyone know a mutual fund that invests primarily or entirely in CMBS? I might risk 50 or 100 on a long term bet. I used to do a lot of work for B piece buyers (though not the buyers on these JP deals). In general, they were motivated by a combination of fierce competition (“too much money chasing too few deals”), plus the fact that they were willing to own the real estate for a while if the rosy scenario didn’t play out. Now I guess they will have the chance to act on that willingness.

I have to agree with Dark Space–the current CMBS pricing makes no sense. Unfortunately, the market can stay irrational longer than you can stay solvent. Still, does anyone know a mutual fund that invests primarily or entirely in CMBS? I might risk 50 or 100 on a long term bet.

]]> By: David Merkel http://acrossthecurve.com/?p=2122&cpage=1#comment-3965 David Merkel Wed, 19 Nov 2008 03:55:08 +0000 http://acrossthecurve.com/?p=2122#comment-3965 When the government guarantees everything, it guarantees nothing. What a mess. (I used to love analyzing CMBS...) It was my favorite securitized sector. Wonder why the B-piece buyers didn't kick the loans that eventually blew up out of the deals. When the government guarantees everything, it guarantees nothing. What a mess.

(I used to love analyzing CMBS…) It was my favorite securitized sector. Wonder why the B-piece buyers didn’t kick the loans that eventually blew up out of the deals.

]]> By: Dark Space http://acrossthecurve.com/?p=2122&cpage=1#comment-3964 Dark Space Wed, 19 Nov 2008 03:54:30 +0000 http://acrossthecurve.com/?p=2122#comment-3964 The AJ is the junior AAA. CMBS is unique - the AAA stack has an AJ, which has around 12% subordination - this is what the rating agencies consider a AAA. Then it has two AAAs above it, an AM with 20% subordination and a group of tranches with a 30% subordination. The subordination level represents how much of the underlying collateral must take a loss before the bond in question takes its first dollar of losses -- so the 30% AAAs are nearly 3x what the rating agencies require. That being said - the deal that is the focus of the WSJ article is one horrible deal. Nobody wanted it when it came out. The loans in question were some of the worst ever seen in the CMBS market. People assumed they would default and priced it in. It's not part of the CMBX index (I don't think, maybe it's in 5), and I wouldn't be surprised if JP actually still holds the subordinate bonds on their books... so, I think its actually all headline risk. 30% AAAs should never trade at double digit unlevered returns - these do not break in Great Depression scenarios. It's similar to one of your reader's earlier comments about BRK, except I actually think there is less risk here and more yield. The AJ is the junior AAA. CMBS is unique – the AAA stack has an AJ, which has around 12% subordination – this is what the rating agencies consider a AAA. Then it has two AAAs above it, an AM with 20% subordination and a group of tranches with a 30% subordination. The subordination level represents how much of the underlying collateral must take a loss before the bond in question takes its first dollar of losses — so the 30% AAAs are nearly 3x what the rating agencies require.

That being said – the deal that is the focus of the WSJ article is one horrible deal. Nobody wanted it when it came out. The loans in question were some of the worst ever seen in the CMBS market. People assumed they would default and priced it in. It’s not part of the CMBX index (I don’t think, maybe it’s in 5), and I wouldn’t be surprised if JP actually still holds the subordinate bonds on their books… so, I think its actually all headline risk. 30% AAAs should never trade at double digit unlevered returns – these do not break in Great Depression scenarios. It’s similar to one of your reader’s earlier comments about BRK, except I actually think there is less risk here and more yield.

]]> By: Obnoticus http://acrossthecurve.com/?p=2122&cpage=1#comment-3963 Obnoticus Wed, 19 Nov 2008 03:53:48 +0000 http://acrossthecurve.com/?p=2122#comment-3963 Actually one of the 07 vintage 10Y AAA CMBS that we track closed around 1150 to swaps today. I thought it'd at least take until the end of the week before it blew out to a thousand... Actually one of the 07 vintage 10Y AAA CMBS that we track closed around 1150 to swaps today. I thought it’d at least take until the end of the week before it blew out to a thousand…

]]> By: PrefBlog » Blog Archive » November 18, 2008 http://acrossthecurve.com/?p=2122&cpage=1#comment-3961 PrefBlog » Blog Archive » November 18, 2008 Wed, 19 Nov 2008 03:39:07 +0000 http://acrossthecurve.com/?p=2122#comment-3961 [...] continue today’s tale of woe, the US Commercial Mortgage-Backed Securities market collapsed: That is the word that one market participant used to describe the action in the CMBS market today. [...] [...] continue today’s tale of woe, the US Commercial Mortgage-Backed Securities market collapsed: That is the word that one market participant used to describe the action in the CMBS market today. [...]

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