While commercial real estate fundamentals remain strong, strains on loan supply could cause borrowing costs to tick higher in 2016.
We selectively favor bonds supported by dedicated revenue streams.
U.S. housing market dynamics and low/negative rates overseas should drive demand for Agency MBS.
U.S. rates products will remain relatively attractive, given extremely low to negative global bond yield levels.
While spreads have since narrowed, we are still finding bargains in high-yield bonds and bank loans.
Agency MBS offers an opportunity to diversify volatility and liquidity risk as we near the end of the credit cycle.
Recent spread widening across several areas of the ABS market, particularly in post-crisis mezzanine CLOs, creates a compelling entry point.
Bank loan valuations weakened in sympathy with the high-yield bond market, but we believe investors are being well-compensated for credit risk.
A technical pricing dislocation in subordinated CMBS and non-traditional CRE offers a compelling entry point for commercial mortgage investors.
Investor demand for commercial mortgage loans was strong in 2015, but it remains to be seen whether the trend will continue in 2016.
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