Bonds backed by commercial real estate loans are gaining as investors flush with cash seek out higher returns and the economic recovery gains steam.
Yields on top-rated securities backed by mortgage payments for skyscrapers, hotels and shopping malls fell 0.11 percentage point to 2.19 percentage points more than Treasuries in the week that ended April 16, according to a Barclays PLC index.
The debt yielded 2.66 percentage points more than Treasuries a month ago, and 3.96 percentage points on Dec. 31, the data shows.
The market for commercial mortgage-backed securities "has seen a violent rally" as gains across credit markets push buyers toward investments with higher yields, according to an April 16 report by Bank of America Corp.
"The rally in competing financial products and a general reduction in risk premium should be supportive of CMBS performance," Roger V. Lehman, a strategist based in New York, wrote in the report.
Additionally, Wall Street banks have increased lending toward the purchase of securities, including bonds backed by commercial real estate, which boosts returns and drives up prices, the report said.
Commercial real estate prices are likely near a bottom and "there has been a vast improvement on the lending front," which should help stem defaults for borrowers with maturing loans, Lehman wrote.
Though growing optimism in recent months that the economy is healing has reassured investors, he wrote, there is "very little that has changed in the past week or so that would justify this seismic shift other than capitulation."