Commercial mortgage-backed securities have shown some improvement just in time for bank second-quarter earnings. The improvement is modest, but it suggests that even the single-A rated tranches of CMBX deals are worth something, which is a less-than-catastrophic scenario. Here’s the performance of two of the Markit indices, rated AAA and A respectively, up through last Friday (click to enlarge):
Market AAA CMBX Index
Markit CMBX SIngle-A Index
70 cents on the dollar for the weakest AAA tranches suggests an expected loss for the pool in the range of 40% to 45%, which is considerably better than the end of the world.
Bank stocks had gotten a tad beaten up and yesterday’s mini-rally only follows the trajectory of asset prices. Banks should continue to trade within the depressed range at which they have stabilized, but they had gotten to the bottom of the range.