Everyone is watching commercial property, given how reliant it is on some of the same regional banks that have been under pressure since the collapse of Silicon Valley Bank.
That pushes up CMBS yields .
As those yields rose, the difference between those and yields on super-safe U.S. government bonds has surged.When spreads go up — traders usually say "widen" or "blow out" — it means trading activity is declining, credit is harder to come by and expensive, and the flow of capital through the economy, or in this case the commercial property sector, is starting to slow.
When spreads really go nuts, as they did early in the COVID crisis and during the financial crisis in 2008, it's the equivalent of a financial heart attack. Sometimes called a "credit crunch," it's when capital stops flowing, and the economy suffers.These spreads are telling us that worries about the commercial property market are getting more serious.
"The direction of travel is concerning," wrote analysts with Capital Economics in a note on Wednesday. "We believe there are risks of a credit crunch developing and spreads widening further."
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