FINANCIAL HOT TOPIC OF THE WEEK: CONTINUED INTEREST RATE MOVEMENT AND SPREAD STABILIZATION
PREADS CONTINUE TO MAINTAIN THOUGH 10 YEAR RANGE IS NOW 2.30 TO 2.39
The 10 Year Treasury, the benchmark of commercial real estate financing, jumped today 8 basis points, reaching a high of 2.39 this morning. The secondary market buyers of commercial real estate loans are maintaining pre-election spreads, which is markedly different than in 2013, when the 10 Year Treasury jumped from 1.95% to 3% range over a 6-month period. During that timeframe, spreads were generally wider by approximately 30 to 40 basis points. This is an interesting comparison of movement because the buyers of loans obviously further anticipated rate increases as spreads continued to widen the last half of 2013. This is not the case now, at least for the moment. Perhaps there is a level of market sentiment that these long-term rates will subside over the next few months. We hope so, though we all anticipate a Fed increase in the short-term rate by .25% in December, which is built in the market dynamics. There is a possibility we will see a flattening of the yield curve for the time being.
For comparison purposes, during this timeframe in 2013, the 10 Year was around 2.80%, and GNMA spreads were generally about 30 to 40 bps higher than they are today. The rates continued to move-up until a reprieve resulted in February 2014. In summary, spreads were wide during late 2013 and early 2014. Today they are quite tight, approximately 30 to 40 bps lower today than the late 2013 timeframe.