One of the October 1 “cliffs” is solved as an approved continuing resolution is on its way to being approved, keeping the Government open until mid-December’s “lame duck” session. As partisanship battles flare and with no serious negotiations underway, prospects for another round of stimulus are fading. As Fed Chair Powell and Treasury Secretary Mnuchin appeared before Congress this week, Powell reminded legislatures that he does not have “spending power” and fiscal policy is their responsibility. The usual “needs list” was discussed by lawmakers: reallocations of unused Cares Act funds, money to schools, more PPP aid to hard hit industries (travel, restaurants, etc). Mnuchin even discussed PPP funding to help landlords make mortgage payments and/or make up for lost rent payments due to the pandemic. Economic bright spots include a rebound in household spending, brisk home sales, increased home mortgage application volume and manufacturing picked up to a 20 month high.
Loan Rates: The 10 year treasury has been trading in a very tight range for weeks (today at 0.67%), securitized loan markets are rallying and spreads are tightening. This continuing “perfect storm” is resulting in 10 year loan rates for agencies and CMBS around 3.00% with some loans pricing in the 2’s. Unless rates go negative, its hard to imagine coupons any lower. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners