Single-family rental bond yields are rising

Supply outpacing demand

The supply of single-family rental securitizations is rising beyond the level of investor demand, and the surplus of available debt is driving yields up.

According to a report from Bloomberg, yields on the riskiest portion of single-family rental bonds have climbed to 5.3 percentage points over benchmark rates, rising from 4 percentage points in early August, according to a note from Bank of America (BAC).

From the Bloomberg report:

“There are a lot of people that got into the asset class, believed in the story and want to see how it goes,” said John Kerschner, the Denver-based global head of securitized products at Janus Capital Group Inc., which has invested in the bonds. “But it’s much harder to buy the third deal, fourth deal, fifth deal if you’re already underwater on your first purchases.”

Bloomberg also reports that “both the safest and riskiest of a recent offering from American Homes 4 Rent paid a higher yield above the benchmark than its September deal, data compiled by Bloomberg showed. The junior portion pays a 4 percentage point spread, compared with 3.6 percentage points two months ago.”

According to Jason Callan, who oversees about $21 billion as head of structured products at Columbia Management Investment Advisers LLC, the supply of the rental-home bonds, particularly in the lower-ranking slices, has been rising too fast to match demand.

“It’s a new market and you just don’t have that many people signed on to fully participate,” Callan told Bloomberg.

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