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| Capital Markets Briefing |
| June 11, 2009 |
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 (53KB)
• Big news out of Washington on Tuesday, as ten banks were approved to repay TARP funds. The ten approved banks include JPMorgan Chase, Goldman Sachs, American Express, Bank of New York Mellon, BB&T Corp, Capital One Financial, Morgan Stanley, Northern Trust, Boston-based State Street and U.S. Bancorp. Not included in the list of approved banks: Wells Fargo, which has not yet applied for approval but has indicated that it will seek a repayment of TARP monies "at the earliest practical date".
• Treasuries rallied today, after falling across the maturities spectrum yesterday when the government's latest 10-year note sale was met with lacklustre demand from inflation weary bond investors. The yield on the 10-year note flirted with 4 percent, a nine-month high. The market for long-term government debt was further tested today with the auction of $11 billion worth of 30-year bonds, which offered the highest yield on a 30-year U.S. bond auction in nearly 24 months. The yield curve flattened out moderately after the auction as 10- and 30-year treasuries posted double digit gains. It appears that historically wide yields on longer-term maturities reached a point that investors were willing to invest despite inflation concerns. (The recent steepening of the yield curve reflects a growing differential between short- and longer-term maturities).
There is a silver lining to the recent steepening of the yield curve: lower effective spreads for permanent fixed-rate whole loans. That interest rates have risen over the past 12 to 24 months is well established. Because real estate lending is ultimately yield-driven, for real estate as an asset class to compete for limited capital allocations, increased spreads on whole loans were unavoidable. Adjusted yield requirements reflect the opportunity cost premium that institutions must consider when opting to originate new loans versus pursuing higher yielding alternative investments such as corporate bonds, discounted note purchases, and residential and commercial mortgage-backed securities (R/CMBS).
That all-in rates for whole loans have not risen in lock step with the steepening yield curve only confirms that lending institutions have not been benchmarking off of Treasury rates. This is welcome news because it provides evidence that lenders have already baked in the opportunity cost premium of originating new loans. By pricing to absolute returns, lenders are signalling that they have begun to form consensus on the cost of capital. LIBOR (the London Interbank Offered Rate) reflects the rate at which banks can borrow funds from other banks. That the 1-month LIBOR, which set at 0.32 this morning, has fluctuated only 9 basis points (and actually trended down) in the trailing 30-day period, provides further evidence of greater liquidity in the market as lower, more stable rates reflect the easing of risk aversive pricing that existed even 90 days ago between banks.
It is important to note, however, that a continued steepening of the yield curve may precipitate a return to benchmarking off of treasuries as portfolio lenders see their margins shrink relative to treasuries, particularly on the longer end of the maturities spectrum. As a result, longer-term debt will become more expensive for portfolio lenders to originate and if treasuries continue to inch their way into the 5 or even 6 percent range, portfolio lenders may question whether their effective spreads are too low relative to “risk free” government debt. This may in turn force their hands and lead to wider spreads on longer-term debt, making shorter-term financings of 2, 3 and 5-years with options to extend much more attractive at least in the near- and medium-term.
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Relief for Commercial Real Estate Debt? It Seems Possible
Wall Street Journal — June 10, 2009
With the commercial real-estate industry bracing itself for the onslaught of hundreds of billions of dollars in maturing loans, the Treasury is considering issuing rules that will make it easier for property developers and investors and their loan servicers to restructure debt, according to people familiar with the matter.
NY Fed Treasury Spread Model Suggests Recession Will End This Year
Seeking Alpha — June 4, 2009
According to the New York Fed, "Research beginning in the late 1980s documents the empirical regularity that the slope of the yield curve is a reliable predictor of future real economic activity."
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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 293 offices in 61 countries. |
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