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CMBS Bonds Turn in Decade of Low Default Rates

NEW YORK CITY-The low default rate of commercial mortgage-backed securities, well below that of corporate bonds, is attributed to the diversification offered by multiplicity of assets, borrowing entities and tenants.

By John Howe | Updated on November 20, 2000

NEW YORK CITY-During the 1990s, the average annual default rate for commercial mortgage-backed securities was well below the average annual default rate for corporate bonds, according to a new report from Fitch, the international rating agency based here. “Particularly striking is the performance of non-investment grade bonds, where CMBS bonds have a significantly lower average annual default rate than corporates,” says Janet Price, Fitch group managing director.

During the last ten years, the default rate on non-investment grade CMBS bonds was 0.14%, well beneath that of 3.07% for non-investment grade corporates. The CMBS average default rate for all bonds ranged between 0.07% and 0.10%, which reflects default rates measured by dollars and by issuers/class, while the rate for corporate bonds fluctuated between 1.51% and 2.41%.

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