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Fixed Income & Data Services/Fixed Income/ICE Fixed Income Monthly Report | April 2023
April 2023

ICE Fixed Income monthly report

In this edition, Amanda Hindlian our President of Fixed Income & Data Services shares her view on the health of the CMBS market. You can also watch our Senior Director of Product Management Tim Monahan explain ICE’s CEP and Trading Analytics content helping clients find liquidity and navigate volatile markets.

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The crossroads for CMBS: a new paradigm for pricing?

There's no question it's a torrid time for commercial mortgage-backed securities (CMBS), especially those backed by office properties. A storm of looming maturities is gathering against a backdrop of high interest rates, structural shifts like hybrid work, and one where many tenants - banks and tech companies - face their own struggles. Already, market participants are being far more granular in their credit analysis.

But the most interesting ramifications lie beyond the near-term upheaval. For example, there’s now sufficient risk that unless a true Class A trophy property is behind a loan, markets are assuming some probability of delay in pay-off or refinance upon reaching maturity. This is problematic on many levels, but particularly for securitized markets, where cash flow timing and predictability is paramount. If you’re feeling some déjà vu to the global financial crisis, you’re not alone. Then, we saw markets draw a line in the sand, after which credit standards tightened significantly, and investors recalibrated their demands on issuers. It essentially bifurcated the CMBS market into one of legacy bonds backed by loans underwritten pre-credit crisis and those inked after the dust began to settle. The issue then was credit quality. Now, it’s largely the shift in demand fundamentals that is being exacerbated by relatively high interest rates. And once again, we seem to be facing a new paradigm for pricing - one where fresh assumptions must be made about demand, pricing, and investor returns.

On a more granular level, we’re seeing what may be the start of a reversal of traditionally-held views on investment selection. Take the perception that loan diversification equates to risk diversification. Instead, a dichotomy is emerging between conduit, where a pool of varied loans are combined, and single borrower/single asset CMBS. Here, we see some market participants gravitating toward the comfort of knowing intimate details or characteristics around a single loan versus the demands of scrutinizing numerous properties in an uncertain and fast-moving marketplace. What could this mean for the way CMBS are issued, traded, and valued? And how will new market dynamics impact capital allocation strategies and the way cities develop? Given that CMBS is only a portion of the much larger CRE finance landscape, it remains to be seen whether the stress showing in bond markets is indicative of broader systematic problems, or a function of investor appetite and liquidity conditions. At a minimum there are valuable signals to be had from this sector and we’ll be watching closely in the months ahead.
ICE BofA US Fixed Rate CMBS Index Total Return
Single Asset Single Borrower CMBS - YoY Price Change

Helping transform fixed income markets


Last year, we launched a report with Coalition Greenwich, Transforming Today’s Fixed Income Markets, which examined the evolution of data and technology being used by buy-side firms. ICE’s senior director of product management Tim Monahan explains how ICE’s CEP and Trading Analytics content is helping clients find liquidity and navigate volatile markets.

Fixed Income in Focus


Emerging markets have been on a rollercoaster, representing a levered play on global growth. But is risk being mispriced? And what influence does China have? PGIM fixed income head of emerging markets debt Cathy Hepworth, CFA recently dissected the dynamics with ICE’s VP of fixed income corporate development Michele Nicoletta.

We also have AllianceBernstein's Tim Morbelli exploring opportunities in the muni market amid a backdrop of rising rates.

Webinar Replay

Advanced fixed income trading analytics

ICE’s Trading Analytics is a comprehensive suite of fixed income products and services, designed to help inform trade decisions throughout the life cycle of an order. Derived using ICE's fixed income evaluations, ICE’s Trading Analytics leverage the extensive content, technology and experienced data science teams of ICE Fixed Income and Data Services.

We hosted a webinar demonstrating our fixed income trading analytics solutions and how they can support pre and post trade workflows.

Pricing wildfire risk into municipal bonds


Media

Wildfires pose a significant risk to human life and property in California. The total economic damage associated with wildfires in 2018 was estimated to be $148 billion, about 1.5% of California’s annual gross domestic product.

ICE collaborated with the United States Forest Service to model probabilistic and climate-conditioned wildfire risk across the United States.

Heat stress: A threat to fiscal stability for municipal bonds?


Over the next few decades, ICE Climate Risk data suggest that heat stress will increase in many parts of the country. The impacts of this increasing heat could be both far-reaching and tragic.

Many municipal bonds have maturities that extend out to 2040 or 2050, a period over which human and economic losses related to heat stress could affect the fiscal stability of municipalities in high heat stress regions.

Fixed Income

Manage risk, uncover opportunities, and make informed decisions in real-time with ICE’s end-to-end fixed income solutions. Reimagine your fixed income workflow from price transparency & discovery and efficient execution through to performance analysis.

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