CMBX AAA 1-5 Spreads
As the Fed is taking proactive measure to address the upcoming CRE cataclysm (as defined by WL Ross and George Soros) via gratuitous policy changes, it is useful to observe the recent market of CMBX 1-5 (2005-2007) AAA-rated trances mid-spreads. As the chart below indicates, the CMBX market may have jumped the shark on risk perceptions. CMBX 1 has dropped to sub 200 bps levels, back to pre-Lehman levels. Yet analysts are finally shifting their attention to both cumulative loss and loss severity estimates in CRE. While one may never be able to recreate the Paulson ABX trade, the current spread on CMBX may provide enough of a buffer to give the most profitable trade of the new millennium a second parallel life, based on the assumption that kicking the can down the road is not a prudent approach by the Fed and the FDIC.