New money in cash markets halted by CMBX volatility, says Citi

CMBX volatility is preventing new money from buying real cash bonds, say analysts at Citi in their recent research. This is because event-driven volatility has created a shorting momentum and then short covering wave pattern in CMBX that feeds through to CMBS cash spreads. It has also been difficult for new money to enter the CMBS market particularly as traditional real money investors were already heavily overweight CMBS in early 2007, they say. When liquidity was removed from the market a year ago in August, nobody was well positioned to step in and take advantage of the market cheapening, they say. Further, those that were in a position to double-down in that time eventually found that the widening CMBX spreads widened their previously cheap cash bonds even more.
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