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Fiscal uncertainty in the US and the fact that Treasury yields aren't high enough to reflect the risk of holding them is making the securities less attractive.
After weathering a barrage of industry shifts, weaker office fundamentals also mean special servicing has increased on office CMBS pools.
A deal to avoid a government shutdown resolves one immediate risk. But a major auto strike, the resumption of student-loan repayments, and a shutdown that may yet come back after the stop-gap spending deal lapses, could easily shave a percentage point off GDP growth in Q4.
For hotel mortgage-backed securities, Fitch expects a better outlook, with the 2023 delinquency rate not expected to return to its pandemic peak of 18.4%.
The funds have relatively small exposure, but unwinding such assets is complex and could mean losses as they are trading at deep discounts and liquidity is scarce.
