Cmbs Trade Idea
Executive Summary
I propose a long position in the single name CMBS security J.P. Morgan Chase Commercial Mortgage Securities Pass-Through Certificates Series 2004-CB8 (“JPMCC 2004-CB8”), Class D.
This trade will implement the long term bullish view I have on real estate without exposure to the near term volatility seen in other mortgage products in the U.S. Aggregate index that are highly sensitive to rates due to the uncertainty in QE3 and other macroeconomic factors. * Recovery in commercial and residential real estate will continue without regard to Fed decisions on QE3. * Fed’s commitment to keep short-term rates near zero until the unemployment target is met means higher commercial property valuations. * There should be a mean reversion of 10-year treasury to cap rate spreads as they are near the all-time highs. * CMBS credit is the best way to take a bullish position on real estate.
* Recovery in commercial and residential real estate will continue without regard to Fed decisions on QE3. * Fed’s commitment to keep short-term rates near zero until the unemployment target is met means higher commercial property valuations. * There should be a mean reversion of 10-year treasury to cap rate spreads as they are near the all-time highs. * CMBS credit is the best way to take a bullish position on real estate.
Trade Rationale
There has been a large amount of uncertainty surrounding the future of QE3 and short-term rates causing increased volatility in agency MBS and other interest rate sensitive securities. The most recent FOMC minutes from January allude to many participants becoming concerned about the risks of further asset purchases, while a February 11, 2013 speech by Vice Chair Janet Yellen mentions the importance of fiscal policy and residential investment to economic recovery. However, real estate in its pure form, meaning the hard asset price, should benefit from either direction the Fed decides on going forward.
I propose a long position in the single name CMBS security J.P. Morgan Chase Commercial Mortgage Securities Pass-Through Certificates Series 2004-CB8 (“JPMCC 2004-CB8”), Class D.
This trade will implement the long term bullish view I have on real estate without exposure to the near term volatility seen in other mortgage products in the U.S. Aggregate index that are highly sensitive to rates due to the uncertainty in QE3 and other macroeconomic factors. * Recovery in commercial and residential real estate will continue without regard to Fed decisions on QE3. * Fed’s commitment to keep short-term rates near zero until the unemployment target is met means higher commercial property valuations. * There should be a mean reversion of 10-year treasury to cap rate spreads as they are near the all-time highs. * CMBS credit is the best way to take a bullish position on real estate.
* Recovery in commercial and residential real estate will continue without regard to Fed decisions on QE3. * Fed’s commitment to keep short-term rates near zero until the unemployment target is met means higher commercial property valuations. * There should be a mean reversion of 10-year treasury to cap rate spreads as they are near the all-time highs. * CMBS credit is the best way to take a bullish position on real estate.
Trade Rationale
There has been a large amount of uncertainty surrounding the future of QE3 and short-term rates causing increased volatility in agency MBS and other interest rate sensitive securities. The most recent FOMC minutes from January allude to many participants becoming concerned about the risks of further asset purchases, while a February 11, 2013 speech by Vice Chair Janet Yellen mentions the importance of fiscal policy and residential investment to economic recovery. However, real estate in its pure form, meaning the hard asset price, should benefit from either direction the Fed decides on going forward.