Today’s OPEC agreement sent oil prices surging. Oil is a critical component in consumer prices. Energy companies whose fortunes are tied to the price of oil make up a considerable portion of the corporate bond market. Low oil prices have contributed to potential defaults in the unrated bond market. But today’s agreement wasn’t enough to raise Treasury yields, the 10 year remains under 1.60%. German bank concerns, US election uncertainty and Fed Chair Yellen’s discussion of upcoming bank regulations and stress tests all contribute to the “risk off” trade. CMBS: The post Labor Day – pre regulation “window” has contributed to a glut of supply and some price widening. However, several originators are now pricing over the 10 year Swap, which is 1.41%, well below the corresponding Treasury. So a Swap rate below the Treasury is now part of the “new normal”, post Brexit world. So new loans pricing at 2.60%-2.70% over the Swap are still coming in at about 4.00%.
Stay Tuned.
