Happy
“It might seem crazy what I am ‘bout to say,” sang Pharrell Williams, but we may be in for a good year in the market for agency commercial mortgage-backed securities (MBS). The annual industry pilgrimage to Miami occurred last week, a time when South Beach trades bikinis and bottle service for blue blazers and finance bros.
The Commercial Real Estate Finance Council (CREFC) is one of the largest gatherings of real estate professionals, clocking in 4,000+ attendees over four days. Lument’s trading desk did not miss out, of course, and held over a dozen private meetings at CREFC over 36 hours.
Whereas Williams sang, in the same song, “Here come bad news, talking this and that,” the bad news fortunately never came for us in Miami. Although we did get some rain, the tone of the conference was very happy, indeed. Below is a summary of our findings.
Main Takeaway: Investors are Very Bullish
Bond-investor optimism knows no bounds right now. The positive outlook, moreover, went beyond our Fannie Mae and Ginnie Mae investor base and was shared by downstream investors as well. We heard of increased appetite by bank, money manager, hedge fund and other asset allocators—which is certainly a good sign.
Supply: Much of the conversation around upcoming supply turned to the increased 2026 multifamily caps (approximately 20% higher, at $88 billion each for Fannie and Freddie) and how the government-sponsored enterprises’ (GSE) plan to attack a recently announced MBS buying program of up to $200 billion. Market participants wanted to sense the extent to which both Fannie and Freddie will support their products through purchases in the new-issue or secondary markets. While most such questions went unanswered (GSE reps were not permitted to discuss), their increased participation is expected to support current spread levels and continue to be a positive force throughout the year. Separately, the GSE volume caps were not necessarily viewed as must-hit targets—so it sounded like the agencies will continue to maintain both their underwriting standards and a tight leash on origination. For color, official 2025 multifamily new-business volume came in with Freddie at $76.4 billion and Fannie at $73.7 billion, compared to their prior $73 billion caps.
Spreads: The conference timing couldn’t have been more perfect, after President Trump’s $200 billion announcement the previous day. Agency CMBS entered the CREFC conference about eight to 11 basis points (bps) tighter on Fannie Mae DUS MBS and Ginnie Mae project loans. When asked about appetite, most investors indicated that they would prefer to hold rather than sell at these levels. Clearly, it’s hard to fight the positive sentiment around increased GSE participation; most accounts we spoke with expect these tighter spreads to stick for a while.
The increased liquidity from the new White House directive, combined with general bullishness, ought to help relative spread compression for the nuances in our market. Specifically, on the DUS side, we saw relative tightening between partial interest only (IO) versus full-term IO, open-yield maintenance, or off-the-run property types (manufactured housing, credit facility, seniors, military, supplemental, etc.), as well as more early-call structures on the Ginnie Mae side.
Some investors were cautious on spreads at these tighter levels but quickly conceded that the move in agency CMBS is more tolerable thus far than in other markets, like residential mortgages. It wouldn’t be hard to imagine some investors taking chips off the table (harvesting gains) here, near-term. Yet it seems like there is enough interest to support current spread levels, especially while supply is a bit muted.
Washington: This topic understandably had a variety of opinions. Lack of clarity, uncertainty of execution, and the frequent, narrative-changing social media posts made predictions scarce. The one thing everyone could agree on was that the administration seems focused on bringing rates down, especially mortgage rates.
2026 outlook: The consensus was certainly positive for 2026 in our market. The interest-rate environment seemed to agree that there is a preference from officials for lower rates, with uncertainty on how we get there. Curve manipulations—like Operation Twist or Yield-Curve Control—were possibilities, but surety gave way to uncertainty pretty quickly. The Federal Reserve seems poised to deliver rate cuts in some capacity later in the year, but the follow through to the rest of the yield curve had differing opinions. Figure 1 shows forecasts from a composite of economists who shared interest-rate predictions with Bloomberg as of December 19.
Overall, it seems that lower rates in the form of Treasury movement and/or spread compression seem to be the mainstream estimate. Demand is high, while supply seems to be poised for an uptick as well. The usual caveats apply here: Uncertainty remains not only on the monetary policy front, but also on the fiscal and geopolitical fronts. Volatility could easily pick up if any of these uncertainties spook investors. But for now, the outlook is positive, which ought to make us all “clap along if you know what happiness is to you.”
FROM THE DESK
Agency CMBS — Our market benefitted from the post-CREFC optimism with both DUS and Ginne Mae spreads tightening on the follow. The late week sell-off in Treasuries, which is keeping its weaker trend this morning, ought to help our market further from a spread perspective.
Municipals — AAA tax-exempt yields declined modestly on the front end of the curve and were flat further out on a week-over-week basis. The new-issue calendar remains light to start the year, which is favorable for deals coming to market in the near term. Reinvestment cash flows are expected to exceed supply in both January and February. Municipal bond funds recorded their eighth consecutive week of inflows, totaling $1.8 billion for the week and $3.47 billion, year to date; high-yield funds captured $346 million of those inflows.
Looking for more economic insights? Check out all of our previous Trading Desk Talk posts.
The information contained herein, including any expression of opinion, has been obtained from, or is based upon, resources believed to be reliable, but is not guaranteed as to accuracy or completeness. This is not intended to be an offer to buy or sell or a solicitation of an offer to buy or sell securities, if any referred to herein. Lument Securities, LLC may from time to time have a position in one or more of any securities mentioned herein. Lument Securities, LLC or one of its affiliates may from time to time perform investment banking or other business for any company mentioned.
