Bond Market Rally has Lenders “Finding the Floor”. Today’s disappointing retail sales report (down 0.9% compared to expectations of a 0.1% decline) caught the equity markets by surprise. Bond markets rallied on speculation that 2015 would see no rate increases by The Fed. This is most likely an overreaction as investors are on edge due to Europe woes. The 10 year plunged to 1.85% today. The ultra-low treasuries have many fixed rate lenders looking at quoting coupons (all-in rates) instead of spreads, comparing mortgage rates to similar corporate bonds and other fixed rate instruments. Many life companies are flooring 10 year terms in the 3.50%-3.75% range, CMBS is in the “high 3’s for apartments, very low 4’s for commercial” as lenders are watching whether the Treasury is going to settle for an extended period or spring back up above 2.00%. ….stay tuned…. David R. Pascale, Jr.
