Just as one global wildcard issue was being solved (Greece and its creditors are finalizing terms this week)… China announced a one-time adjustment on Tuesday, devaluing the Yuan 1.6% and then again devaluing it today another 2.0%. This led to major volatility in US and European equity markets and a flight to quality as investors flocked to US and German Treasuries, the 10 year T yield hit 2.07% today before closing at 2.15%. The devaluation will hurt US companies exporting to China, strengthen the dollar and contribute to the continuing weakness in commodity prices. The big question for rates is will this further dampen inflation enough for the Fed to delay the expected September liftoff? CMBS Credit Spreads: The sudden news from China contributed to a risk-off trade in the credit market. CMBS spreads are widening. A pool in the market this week is rumored to be pricing at about Swaps + 117 with further widening in the lower classes due to: China, huge supply, typical August illiquidity, bond buyers differentiating between pool content by originator with bond buyers increasingly preferring homogenous pools over several contributors. New loans are pricing anywhere from Swap + 215-240. The wide range is a function of the uncertainty in the market…stay tuned… David R. Pascale, Jr.
