Last week’s Jackson Hole conference was dominated by speeches by ECB Chair Draghi US Fed Chair Yellen. Their speeches indicated a divergence: Draghi is concerned about very low inflation (and therefore the specter of deflation) as the Euro economic indicators are recessionary. This raised the possibility of aggressive quantitative easing by the ECB, therefore bond yields are plummeting. 10 year Bond yields are rock bottom, Germany (0.91%) has been low for a while, but the “shockers” are Spain (2.14%) and Italy (2.39%). Remember, these economies were on “watch list” in the past few years with bond yields approaching 8.00%. These rock bottom yields are driving investors to US Treasuries for a “safer yield play” as the 10 year Treasury closed at 2.36%; well below the recent key technical floor of 2.44%….. Credit Spreads: Life companies are aggressively pricing over the treasury and ignoring recent CMBS widening for lower leverage. All-in rates for 10 year institutional quality assets are under 4.00%, CMBS full leverage (even with the recent widening) still at or around 4.50%. …stay tuned… David R. Pascale, Jr.
