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Banks and opportunity funds are hunting for bargains among cut-price European Commercial Mortgage-Backed Securities (CMBS), raising hopes the debt market deep-freeze may be about to thaw.

Growing appetite for European CMBS could provide a breakthrough for banks desperate to free up loan book capacity by issuing new CMBS, which many see as a vital first step back towards cheaper and more flexible lending.

“CMBS is fantastically cheap. We see this as a once in a lifetime buying opportunity to pick up AAA-rated paper at amazing spreads,” said Caroline Philips, Eurohypo’s managing director of securitization in Europe.

The once-thriving CMBS market has been comatose since last summer’s credit crunch triggered a collapse in demand and enormous slack in spreads.

Credit Suisse data from March 27 showed European CMBS cash spreads were 240 basis points over the London Interbank Offer Rate (LIBOR) at AAA level and 750 basis points over at BBB, which Philips said was basically pre-credit crunch prices “with a zero on the end”.

Philips said Eurohypo, which is better known for its CMBS issuance activities, was in the middle of an acquisition spree motivated by “no-brainer” AAA CMBS pricing.

“We have bought around 100 million pounds worth of CMBS in recent months but we want to do more,” she said, adding that the bonds were bought with a view to holding to maturity because potential returns on equity were “enormous”.

Spreads at their current magnitude could indicate huge problems with the underlying credit but some investors say the CMBS sector has been hit too harshly by fallout from the U.S payday loans. subprime residential mortgage crisis and the long-anticipated end of a European property market boom. 

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