What are US Agency CMBS?

US Agency commercial mortgage-backed securities (Agency CMBS) are bonds collateralized by pools of real estate loans secured by multi-family or health care properties. They are issued by a US government agency or federally chartered corporation, such as Fannie Mae, Freddie Mac or Ginnie Mae. They are a potentially attractive way, in our view, to access the US commercial real estate market.

Invesco Fixed Income (IFI) believes an Agency CMBS strategy can help diversify an overall fixed income portfolio by providing targeted exposure to multi-family or health care mortgage loans. Similar to Agency residential mortgage-backed securities (Agency RMBS), Agency CMBS benefit from a guarantee of principal and interest from the issuing agency or federally chartered corporation. However, they are typically less sensitive to interest rate risk for two reasons:

• Agency CMBS loans have balloon payments at maturity.

• Agency CMBS loans benefit from prepayment protection, which reduces potential cash flow variability.

We believe these features make Agency CMBS a potentially attractive complement to Agency RMBS in an overall portfolio.