Monetary Policy Report submitted to the Congress on February 27, 2008, pursuant to section 2B of the Federal Reserve Act

Figure of spreads of ten-year investment-grade commercial mortgage-backed securities over swaps, by securities rating, 1997-2008. Data are plotted as two curves. The spread over swaps of securities rated AAA holds in a tight range of about 20 basis points to 40 basis points from the beginning of 1997 through the end of August 1998. It then begins to widen, reaching a peak of about 110 basis points in mid-October 1998. It then falls back and fluctuates within a relatively narrow range of about 20 basis points to about 75 basis points between the end of 1998 and mid-July of 2007. It then begins to widen again, reaching a peak of about 280 basis points in mid-February of 2008. The spread over swaps of securities rated BBB starts in 1997 at about 80 basis points, generally narrows to about 40 basis points in mid-1997, and then rises to nearly 100 basis points by early 1998. It widens sharply in mid-1998, reaching a peak of more than 250 basis points in early November 1998. It then narrows to about 110 basis points by mid-1999 and fluctuates within a wide range of about 60 basis points to roughly 200 basis points through June 2007. The spread rises significantly in July and August 2007 and varies within an elevated range through October, when the spread rises significantly again and reaches a peak of about 1250 basis points in mid-February of 2008.

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