CMBS Spreads Reach Record Highs
The commercial mortgage-backed securities (CMBS) market has seen a surge in activity in recent months, with spreads reaching some of the widest levels in years. This has attracted the attention of investors such as GMO Sun Life, who are looking to capitalize on the opportunity.
What are CMBS?
CMBS are a type of security backed by a pool of commercial mortgages. They are typically issued by banks and other financial institutions, and are used to finance the purchase of commercial real estate. The mortgages are pooled together and then sold to investors, who receive a portion of the interest payments from the mortgages.
Why are CMBS Spreads Widening?
The widening of CMBS spreads is due to a number of factors. One of the main drivers is the uncertainty surrounding the economy. With the pandemic still ongoing, many businesses are struggling and there is a lack of clarity about the future. This has caused investors to become more cautious, leading to a decrease in demand for CMBS.
At the same time, the supply of CMBS has increased. Banks and other financial institutions have been issuing more CMBS in order to take advantage of the low interest rates. This has resulted in an oversupply of CMBS, which has pushed spreads wider.
GMO Sun Life Sees Opportunity in Widening Spreads
GMO Sun Life, a global asset manager, has taken notice of the widening spreads and sees an opportunity to capitalize on the situation. The firm has been actively investing in CMBS, taking advantage of the attractive yields available.
GMO Sun Life has been focusing on the most attractive parts of the CMBS market, such as those backed by higher-quality mortgages. The firm has also been investing in CMBS with shorter maturities, which are less affected by the uncertainty in the market.
Risks of Investing in CMBS
While investing in CMBS can be attractive due to the high yields available, there are also risks associated with the asset class. One of the main risks is that the underlying mortgages may default, which could lead to losses for investors.
In addition, the CMBS market is highly sensitive to changes in the economy. If the economy were to enter a recession, the value of CMBS could decline significantly. This could lead to losses for investors who are holding CMBS.
Conclusion
The CMBS market has seen spreads reach some of the widest levels in years, which has attracted the attention of investors such as GMO Sun Life. The firm has been actively investing in CMBS, taking advantage of the attractive yields available. However, there are risks associated with investing in CMBS, and investors should be aware of these before investing.