Yesterday the 10 year hit an intra-day low of 1.35% and closed at 1.37%. The previous low was July 2012 during a flight to quality due to European concerns (Spanish banks, etc). It’s déjà vu all over again as Brexit fallout (some major British real estate funds suspended trading amid panic withdrawals) and Italian bank concerns (17% of loans ranked as “doubtful”) rattle the markets. With Japanese and German bonds showing negative yields (the Japanese 20 year crossed into negative territory for the first time this week), a 1.35% US Treasury is the “high yield alternative” The low yields reflect expectation of tepid global growth prospects in the coming years. England may go into a recession and the US has not yet achieved “escape velocity” since the financial crisis. The Fed referenced this in their recent use of the term “the new normal” Aging demographics, periodic foreign event shocks, low inflation are all contributing to a consensus that 3.0-3.5% growth may be unachievable for any sustained period of time. Credit Spreads: CMBS loan spreads have widened commensurate with the Treasury yield drop, but new loans are pricing in the 4.25-4.50% range. Life Companies are flooring rates, but are pricing under 4.00% for the right transactions. stay tuned
