FINfacts Newsletter XVII-10

In another sign of easing in the “macro” credit markets, 3 month LIBOR is at an all time low, 0.94% (since the BBA began publishing the rate in 1986). For commercial real estate borrowers, this doesn’t mean much in the near term as virtually all lenders are flooring LIBOR or all-in rates above that. But it is part of a positive trend. Meanwhile, Treasury yields have risen over the past few weeks, the 10 year is at 3.26%, up from 2.04% at the beginning of this year. The rise is due to the record amount of supply and the gradual return of investors’ risk appetite (i.e. less “flight to quality”). The risk tolerance “balance theory” should keep loan rates fairly steady as we expect spreads to narrow as the Treasury index rises.

Stress tests, focus on the balance sheets: There is a wide range of opinions over the methodology and relevance over the Fed’s bank stress tests. Market reaction has been generally favorable to the results for two reasons: (1) The issue has been quantified and a layer of uncertainty has been eliminated; and (2) The results indicate several banks may be healthier than some of the dire analysis of recent months. Once again, the issue points to the effect of the macro economy on the credit markets. If unemployment, earnings, housing, etc continue to worsen then bank balance sheets are going to deteriorate further. At issue are the huge portfolios of complex mortgage assets on the books of the large institutions. In the best scenario, i.e.: we are at the bottom and the overall economy recovers sooner rather than later, these assets could actually perform with low default rates and help return the banks to resume normal lending. However, we aren’t nearly there yet… Stay tuned… (David R. Pascale, Jr.)

GSP Principal and Senior Director Steve Bram will be the featured speaker at the Cornell Club of Los Angeles' Quarterly Business Networking Breakfast. Mr. Bram will lead a discussion about overcoming the challenging times in which we find ourselves.  For more information regarding this event please click on the following link - Event Information.