July 2025

The Debt Monitor

Key Credit Themes- Review & Preview

MBA Commercial/Multifamily Mortgage Debt Q1 2025 Report Shows More Resilience. The MBA Q1 2025 Report highlighted continued growth in outstanding mortgage debt, up $47 billion, or 1%, to $4.81 trillion, driven by continued demand for commercial and multifamily debt from banks, GSEs and life insurance companies. The report also noted stable loan performance and manageable default rates, indicating resilient mortgage debt markets despite recent economic uncertainties. Commercial banks continue to grow the amount of commercial and MF mortgage debt they hold, however, on relative terms their share of debt held has fallen by 50 bps to 37.7% over the past year. Meanwhile CMBS, CDO and ABS investors have increased their share by a like amount to 13.3% as the structured market is funding more CRE debt refinancing. Overall, the report underscores ongoing confidence in commercial real estate with modest risk levels and steady lending activity supporting future growth.

Short-term Funding Rates Expected to Edge Upward With Higher T-Bill Issuance During H2 2025. CRE borrowers could face some near-term headwinds with the passage of the “Big Beautiful Bill” (BBB) in the form of potentially higher funding rates in the short-term lending market. The BBB, which suspends the debt ceiling, will allow the Treasury to increase its T-bill supply so that it can replenish its cash balance in the Treasury General Account. Most expect upwards of ~$600 billion of T-bill issuance by the end of August and up to $800 billion by the end of the year. The futures market is currently pricing in a minimum 5-bp bump in the SOFR rate for September 2025 and upwards of 10 bps by the end of November 2025 based on SOFR’s basis spread above the Fed Funds rate.

CRE Bond Volatility Goes On Holiday While Bond Vigilantes Remain Bearish. CRE debt volatility continues to trend lower, following the lead of Treasury Debt volatility indices, “MOVE,” and “VXTLT.”  Volatility levels (30D annualized) for REITs, CMBS, and leveraged loans recently dipped below their long-term medians of ~2% - 4% extending a period of complacency following their vol spike in April. CRE debt volatility levels doubled in most credit strategies during April and have steadily retreated over the past couple of months. This decline in volatility portends market expectations for more stable yields and narrower spreads in some CRE credit strategies. Despite the extreme net short position in the 10-year Treasury Note, tail-risk could reappear if a market dislocation triggers leveraged funds to unwind their massive net-short futures contracts position. This is the second time since last August their bearish stance against the 10-year T-Note has risen above 2.0 million futures contracts, marking a double-bottom in net short positioning by Leveraged Fund managers (see attached chart). 

CRE Credit Strategies Delivered Positive H1 2025 Returns, Ahead of U.S. Corporate Debt Benchmarks. With the first half of 2025 in the books, it merits noting CRE debt returns are running ahead of their U.S. corporate debt benchmarks. Total returns for I-Grade REITs and AAA CMBS are up +4.45% and +4.18% through June, respectively, which are ahead of U.S. I-Grade Corporate’s total return of +3.86%. Total returns for High-Yield REITs and BBB CMBS are up +7.66% and +5.03%, respectively, ahead of U.S. High-Yield Corporate’s total return of +5.03%. What makes this more noteworthy is annualized volatility for each CRE credit strategy is trading below their long-term medians and trailing their corporate benchmarks despite the material spike in bond volatility that occurred during April.

Access the full report here.