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| Weekly Interest Rate Tracking |
| December 3, 2008 |
Good Afternoon,
Attached is a PDF copy of Colliers Meredith & Grew's interest rate sheet that includes current and historical Treasury, LIBOR and Prime interest rates, which are updated daily with real time data from Strategic Alliance Mortgage.
We provide these updates on a weekly basis to keep our clients and colleagues aware of rate movements. We hope you find this information helpful.
DOWNLOAD INTEREST RATE SHEET (147KB)
The following Market Perspective provides insights and commentary on breaking news and emerging trends in commercial real estate finance.
Colliers Meredith & Grew Perspective.
Expect treasuries to remain volatile as they ebb and flow with the equity markets. The recent flattening of the yield curve remained in force this week as short term maturities posted modest yield increases while longer term maturities posted modest yield declines. According to Strategic Alliance Mortgage, as of 2:35 pm EST, the yield on the 3-year note had edged higher by .001 bps to 1.083%. The yield on the 10-year note fell three bps to an historically low 2.686%. The 2-year / 10-year spread shrunk to 1.603% from 2.270% only one month ago.
Inflation risk priced out of US bond market as yield curve flattens out.
According to Financial Times’ Long View: Low yield bonds, "the health of the financial system can be gauged by a look at where long-term bonds are trading. By virtue of its risk-free status, government paper is liquid and yields react very quickly to the backdrop of actual and perceived changes in the economy, investor sentiment and monetary policy. This past week, the yield on the US Treasury note closed below 3%, a level not seen in 50 years.
It is hard to understate how important the fall in long-term bond yields is. In the realm of government bonds, the 10-year notes are the benchmark and safest of safe-haven assets. Investors also pay close attention to 10-year government paper, as it is a maturity whose value is primarily determined by the future outlook for inflation.
In recent weeks, the risk of inflation for the next 10 years has been priced out of the US bond market. The current low 10-year Treasury yield thus reflects the removal of its customary inflation premium. Fear of deflation is now stalking the bond market and policy makers. What finally broke the 3% threshold for long-term US rates this week was the news that the Federal Reserve plans to buy $500bn of mortgages. In the US, the average life of a mortgage is about 10 years, given the ability of home owners to refinance their debt whenever rates fall sharply. This (past) week, benchmark mortgage rates fell as much as 0.67% as the Fed’s planned purchases equate to a year’s worth of mortgage supply. That made 10-year Treasury notes much more attractive on a relative basis and sparked a scramble by mortgage loan investors to buy them.
At the very least, the Fed has succeeded in pulling long-term rates lower and, if sustained, that may help cushion some of the pain in housing. The question is whether low rates will work this time. Back in 2003, when the 10-year note dipped to 3.07%, deflation was a false scare and within a couple of months the 10-year had rebounded above 4.50%. This time, the threat of deflation is being taken more seriously. Should policymakers again avert that fate, bond yields may be primed for an explosive rise as fiscal spending plans and the expansion in money supply suggest inflation is the likely outcome."
Life Insurance Premiums Down
According to American Banker’s Life Insurance Premiums Down, "new premiums for individual life insurance fell 11% on an annual basis in the third quarter, according to Limra International Inc.'s sales survey report. After seven straight years of considerable growth, Limra said that universal life premiums "are experiencing a significant decline in 2008," the Windsor, Conn., trade group said Monday. Those premiums dropped 12% in the third quarter from a year earlier and 2% in the first three quarters of the year, according to the report."
(CMG Perspective). The confluence of soaring claims and declining premiums should be carefully monitored as this situation will likely require U.S. life insurers to hoard capital or face credit rating cuts and further punishment in the equity markets. Looking forward, U.S. life insurers can be expected to reevaluate their appetite for commercial real estate lending. Despite a number of insurers anticipating a return to the market in early 2009 with many having indicated they expect allocations to remain consistent with 2008 levels, given prevailing market conditions, 2009 lending allocations may be in the crosshairs.
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| Please contact the Capital Markets Group at Colliers Meredith & Grew with any financing questions.
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Colliers Meredith & Grew is a Boston-based commercial real estate company with integrated service groups including Brokerage, Capital Markets, Counseling & Valuation, Development & Advisory, Investment Sales, and Property & Asset Management. In addition to representing its core clients in New England, Colliers Meredith & Grew provides national and international real estate services to its multi-market clients as a member of Colliers International and as an owner/member of Strategic Alliance Mortgage LLC (SAM). Colliers International is a worldwide affiliation of independently owned and operated companies in more than 290 offices in 61 countries. |
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