The AI (ChatGPT) Bond Investing Handbook: Non-Agency CMBS

Here is the response from ChatGPT for the prompt CMBS non-agency entered on February 25, 2023.

Non-agency CMBS (Commercial Mortgage-Backed Securities) are securities that are created by pooling together a group of commercial mortgages that are not insured or guaranteed by government-sponsored entities such as Fannie Mae, Freddie Mac, or Ginnie Mae. Non-agency CMBS are also known as "private-label" or "conduit" CMBS.

Non-agency CMBS are generally considered to be riskier than agency CMBS, as they are backed by mortgages that do not have the same level of government support. These mortgages may be issued to borrowers with lower credit ratings or may be for properties that are considered riskier, such as non-traditional commercial properties like hotels, self-storage facilities, or healthcare properties. As a result, non-agency CMBS typically have lower credit ratings and are less liquid than agency CMBS.

Investors in non-agency CMBS receive payments based on the principal and interest payments made on the underlying commercial mortgages, similar to agency CMBS. However, because these securities are considered riskier, they may offer higher yields to compensate for the additional risk.

Non-agency CMBS can be bought and sold on secondary markets, but they are generally less liquid than agency CMBS. Additionally, because these securities are backed by mortgages that do not have government support, they may be subject to greater risks, such as higher default rates during economic downturns or in the event of borrower default or bankruptcy.

Overall, non-agency CMBS provide investors with an opportunity to invest in a pool of commercial mortgages that may offer higher yields, but also come with higher risks than agency CMBS. Investors should carefully consider the risks and rewards of non-agency CMBS before investing in them.

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