Bundles of lower-rated mortgages tied to hotels, offices and retail properties across the U.S. have lagged behind the debt markets’ rebound, a sign of the pandemic’s lingering blow to commercial real estate.

An index tracking commercial mortgage-backed securities with a triple-B rating—the lowest broad investment-grade tier—remains below pre-pandemic levels, despite a broad recovery in credit markets. Indexes tracking mortgage-backed bonds with higher concentrations of hotel and retail properties are struggling even more.

Investors are being choosy about all but the highest-rated debt, said Jose Pluto, head of mortgage credit research at Aegon Asset Management. “Market pricing is all over the place depending on the story,” he said.

The gap between yields, or spread, on an index of triple-B-rated commercial mortgage-backed securities, or CMBS, and the 10-year Treasury note on Thursday tightened to 5.1 percentage points, according to real-estate data firm Trepp. That is down from a high of 11.2 percentage points reached in April, but still above the 2.4 percentage points before the pandemic.

As of Wednesday, the spreads for triple-B-minus-rated tranches of the IHS Markit indexes CMBX 9 and CMBX 6, which include more hotels and malls, floated near highs reached during April and May. The spread for a similarly rated index with increased exposure to offices, the CMBX 12, has fallen from its highs but still sits above pre-pandemic levels.

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