Mortgage Backed Securities make a comeback

Posted on 21 July 2009 by Ray Boulger

1 comment(s)

The FT is reporting that Land Securities is in the process of issuing £360m of Commercial Mortgage Backed Securities (CMBS) with a maximum term of 18 years. The security is a single prime office building in Queen Anne’s Gate, Westminster, tenanted by the Government. It will be a straightforward fixed rate bond with none of the slicing and dicing which was normal prior to the credit crunch.

Apart from confirming it was marketing the bonds Land Securities refused further comment and so, assuming the issue succeeds, a key piece of information to wait for will be the yield at which the bonds are sold.

This follows a similar £430m issue by Tesco last month and one thing both issues have in common is that they were both from very highly rated companies offering absolutely prime assets as security.

Whilst one must be careful not to read across too much from these issues to the residential mortgage backed securities (RMBS) market it is nevertheless very encouraging to see the market for new mortgage backed securities beginning to open up, albeit on a very limited basis. But you have to start somewhere.

There are plenty of potential lenders keen to issue RMBS and banks active in the market such as J P Morgan keen to test the water with investors. As far as I am aware the last issue of RMBS was by HBOS a little over a year ago. This was designed to test the market but HBOS had to concede a yield of around 9.5% to get the issue away. However, the investors will have done very well out of it and assuming the Land Securities issue is successful the day issuing RMBS again become a viable proposition is looking a little closer.

UPDATE. 24.7.09. I am reliably informed that The Land Seurities CMBS was issued on a margin of 1.45% over the 10 year gilt, which today closed at 3.96%. This margin compares with a typical margin of 0.2% for an issue of this quality prior to the credit crunch.

Categories: Property market, Mortgages

Bob Jones says:

This is terrible news. If you think we have a problem now, it's nothing compared to what will result if the MBS imaginary gravy train starts again. This time we needed the biggest intervention since the Depression, next time we will have no ammunition. When will we learn?
Posted on 22/07/2009 10:14 by Bob Jones

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