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Should your core bond fund own CMBS - the cousin of MBS? Interview with Don Quigley of the Artio

BondInvestor
edited September 2012 in Fund Discussions
LB: What makes CMBS an attractive investment for Artio?

Don Quigley: Rock-solid credit and high relative value. However, I should note that we have started to sell-off some of our CMBS position. A year ago, maybe 13 or 14% percent of our portfolio was invested in CMBS. However, as the spreads over treasuries on our positions have narrowed to 100 bps (1%) we have started to take profits. The question for us in any position is are there better investment opportunities.

In general, the property owner has skin in the game and would take a loss before the holders of CMBS. In recently issued CMBS, the LTV is 64%. That means the value of the loan is 64% of the value of the property which serves as the collateral for the loan. This provides tremendous protection. Additionally, there is subordinated debt. The loan is divided into tranches (pieces), and certain tranches will be the first to absorb losses on CMBS. By selectively buying certain tranches, you can have a buffer against losses, where other bondholders would absorb the first 10%, 20%, or even 30% of losses on the CMBS.

For the full interview http://www.learnbonds.com/commercial-mortgage-backed-securities-cmbs/

Comments

  • BondInvestor
    CMBS - stands for commercial mortgage backed securities. Its not being used as the name of as specific fund. The symbol for the Artio Total Return Bond Fund is BJBGX.
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