A continued pull-back in the spreads of US private-label commercial mortgage-backed securities (CMBS) since the start of 2024, at a time when those of US high-yield corporate bonds have edged up (see Chart 1) and “risky” assets in general have come under a bit of pressure, appears to reflect improving sentiment towards the troubled US office sector. Nonetheless, while the worst may perhaps now be over for US equity office REITs, we think there is more distress to come in the underlying US office market this year. What’s more, we still don’t think there will be a subsequent strong turnaround, given reduced demand for US office property in the wake of the pandemic amid greater working from home. Join our drop-in tomorrow for more on the outlook.
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