NEW YORK Feb 11 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.
Hedge funds have been betting against, or shorting, the CMBX indexes since October, investors said. Some have simply switched positions from the ABX indexes benchmarked off of subprime mortgage bonds that, because of their year-long drop, have become more expensive and riskier to short, they said.
Last week, Fitch Ratings said deliquencies in collateralized debt obligations backed by commercial real estate crept higher.
Most analysts at rating companies and investment banks agree that commercial property defaults will rise but not match the debacle seen in subprime home loans. (Reporting by Nancy Leinfuss and Albert Yoon; Editing by Jonathan Oatis)