The 10-year Treasury yield was 2.12% on January 2, 2015 with predictions of 2.50-3.00% for year end 2015 and the Fed raising rates…. Well, the Fed is raising rates but the long end of the Treasury curve is not following. Today’s 10-year T closed at 2.17%. Why? It’s another reminder that the Fed controls short term rates (except when they meddle in the bond market with unusual buying or selling of Treasuries). The 2 year spiked to over 1.00% last week, the highest in 5 years. Also, the 10-year treasury is reacting to the ‘risk off’ trade (Iran/Saudi tensions, North Korean nuke testing, China currency volatility, etc.) and the lack of inflation. Watch for the long treasuries to be extremely sensitive to inflation news and trends this year…… CMBS: As spreads continued to widen during December (which is usually a ‘thinly traded’ month anyway), originators took pools off the market and will be putting them out later this month. Traders will be back with fresh allocations but bidding into a large supply. The first pools to securitize in 2016 will be watched closely for pricing guidance… stay tuned… David R. Pascale, Jr.
