The recent surge in the yield spreads of US BBB-rated commercial mortgage-backed securities (CMBS) over Treasuries underscores the risks to US regional banks from their significant exposure to the ailing commercial property market. Admittedly, spreads are a far cry from their heights reached during the Global Financial Crisis (GFC). But the direction of travel is concerning. We believe there are risks of a credit crunch developing and spreads widening further.
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