Bonds Backed by Apartments Are Under Stress as Housing Market Cools

Defaults are rising for a niche mortgage bond used primarily to fund apartment-building purchases, another sign that rising interest rates are upending the property sector.

This product, known as collateralized loan obligations, or CLOs, are mortgages packaged into bonds that are sold to investors. These mortgages helped fuel the rise in housing costs across Sunbelt states such as Arizona, Texas and Nevada, facilitating the purchase of buildings where property owners saw opportunities to raise rents.