The firing squad in front of commercial mortgage backed bonds is taking yet another cigarette break. There was a sharp increase in the demand for this paper last month, with prices rising despite more television coverage of politicians’ warnings of the risk to banks from bad commercial real estate loans.

Despite all the reports about empty buildings, falling rents, etc etc, the buy side has been loading the boat with cheap commercial mortgage paper. There were two reasons for this: the enormous inflows of cash into bond funds and portfolios have already bid up all the sound paper, or even junk corporates, and the fetid CRE paper was what was left. Then the Federal government made it easier to do orderly, if not necessarily wise, workouts of real estate loans.