“The market for debt used to finance hotels, offices and shopping malls tumbled Tuesday on worries that the long-feared rise in defaults for commercial mortgage-backed securities had begun, possibly ushering in the next phase of the financial crisis.”
Here’s how scary. On this chart up is bad (it measures a spread). Each segment is six weeks.
Explanation: A significant fraction of loans for commercial development are funded on the Commercial Mortgage-Backed Security market. That means the loans are bundled together and sold as securities in much the same manner and to the same buyers as the now infamous sub-prime loans. The chart indicates the difference between the 10-year Treasury rate and rate that makes the security attractive. In other words, the line (the spread) indicates the perceived risk.