As many reader likely know, the Markit CMBX indices are commercial real estate mortgage-backed securities default indexes, However, unlike the more familiar subprime indexes, the ABX, which is based on bond prices (so down is bad), the CMBX is based on spreads. When spreads go up, bond prices go down, so for the CMBX, up is bad (assuming you are long real estate or bonds).
Since the CMBX is a proxy for the market, many argue that it is used so much for punting that it isn’t a reliable guide to fundamentals. What is interesting is that the CMBX AAA index has reached a sudden nasty new height; the indexes for lower-rated bonds have merely returned to or are approaching their worst historical levels of early January. But even if you view it as a mere sentiment indicator, investor mood seems to have taken a sharp turn for the worse.
“This is evidence that the commercial property market continued to fall, and at an accelerated rate, through the last quarter of 2007, no doubt due to the effects of the credit crunch,” said MIT Center for Real Estate Director David Geltner.