CMBS Index Continues to Widen

The CMBS indices aren't quite the same as the ones for residential securities. Every six months, a new index is formed using the last 25 CMBS issuances. This story is referring to CMBX-4, which represents the most recent grouping of loans. It indicates traders expect more defaults on the most recent batch of CMBS. The one caveat is that people I've spoken with say the CMBX indices are lightly-traded and therefore small numbers of trades lead to large swings. And there's a worry that the index is out of step with the underlying risk of the actual bonds.

Yield spreads on the highest-rated "AAA" tier of a key derivatives index tied to commercial mortgage loans weakened further on Monday as investors bet on further weakness in commercial real estate.

The "AAA" CMBX-4 index widened another 10 basis points to trade at a midpoint spread of 235 basis points in afternoon trade on Monday, compared with its record high 224 basis points close on Friday, according to market sources.

The index, tied to bonds backed by office buildings, hotels and retail stores, is used by investors to hedge against commercial mortgage risks. The "AAA" slice ended the prior week 90 basis points wider as analysts ramped up warnings of increased downgrades and losses, especially if the U.S. economy falls into a recession.


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