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Heightened risk in CMBS as issuance increases

The balance of commercial mortgage-backed securities on Morningstar's watchlist increased to $24.8 billion in April from $22.9 billion at the end of March. While these securities are not currently in distress, Morningstar sees reason for heightened risk to cash flows that increase their probability of default. Recent bankruptcies and retail store closures were cited as the root of the increase.

About $860 million in loans went delinquent in April after $1.34 billion in loans went delinquent in March. The amount of delinquent loans as a percentage of outstanding issues fell to 2.24% in April from 2.35% in March and 3.1% a year ago. The bulk of the delinquent loans are those that were originated before the financial crisis, which have been steadily decreasing as bad loans get resolved or liquidated. The volume of loans has been increasing, which as the numerator in the equation will also contribute to a lower delinquency rate.

According to Bloomberg, The CMBS market added $186.1 billion in 2017, its best year since 2007; through March, the market added another $20.2 billion.