Today’s release of Fed meeting minutes indicate that a rate hike might happen earlier than mid-2015. Minutes indicate a debate among the governors as to how sustainable the economic recovery is. Although the headline unemployment number is 6.2%, the more “dovish” Fed governors are concerned with labor participation, part-time vs. full-time, weak wage growth, etc. The problem is that the “new normal” of the post Great Recession is stubbornly not turning out like previous recoveries. Some Fed governors may be resigned to the fact that the Fed has exhausted its remedies and is in danger of stoking inflation. They fear that if the Fed waits too long to raise rates, that they may not be able to “get ahead” of inflation…… Credit Spreads – CMBS spread widening slowed this past week. The recent dislocation may indicate that bond buyers are differentiating between pools, depending on credit quality as certain pools were considered to be more risky due to deteriorating underwriting standards. Another interesting harbinger of credit widening has been huge outflows of monies from high yield funds which buy riskier bond assets…. A huge supply looms with $21 billion in new CMBS issues set for September and October. In previous years, August has sometimes been “choppy” as senior traders and money managers are on vacation, hopefully they come back rested and ready to take on this new supply… …stay tuned…. David R. Pascale, Jr.
