Fed Rate Hike Next Week Now Fully Expected by Markets

Today’s ultra strong payroll report not only showed great “topline” numbers (nearly 300,000 new private sector jobs vs. the expectation of just under 200,000), but it also demonstrated the jobs came from increases in construction and manufacturing as opposed to the service sector.  Employers are confident that Washington will deliver on infrastructure and deregulation.  Recent remarks by Fed committee members have prepared markets for a March increase plus two more this year.  That would put LIBOR at about 1.50% by year end.  The 10 year Treasury yield climbed above 2.50%.  Note that 2.60% is seen as a “key technical” level,. If the yield climbs above that, it could easily climb to 2.75% according to some metrics.  CMBS spreads are still tight, with full leverage pricing in the low 200’s over Swaps (around 4.60%-4.75%) and low leverage (50-60% LTV), pricing around 4.25% with lots of interest only as originators chase quality loans that push their overall leverage down. Stay tuned.  By David R. Pascale, Jr. , Senior Vice President at George Smith Partners.

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