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“Normal” Inflation Continues But Oil Prices May Put the Brakes On

Today’s major data points can be interpreted as a look to both the present and the future, and forward looking markets are acting accordingly. This morning’s CPI report showed consumer prices rising at their highest level in 9 months, keeping the “inflation is back” narrative alive. But a closer look reveals that 1/3 of the increase is due to gasoline and other energy components. With worldwide oil markets plunging, the near future may see a cooling of inflation. Oil prices often impact interest rates, as markets view oil demand as a bellwether of global growth. So today saw Treasury yields drop, the 10 year is at 3.12%, after hitting a recent high of 3.25% earlier in the month. CMBS and other Fixed Rates: CMBS bonds stopped their slide (spreads had been widening), a cutback in supply as we approach year end helped. CMBS spreads for full leverage loans are still in the 200 range (about 190-210 over the Swap). Life companies at lower leverage are anywhere from 130-180 over the Treasury. So all-in coupons range from 4.50 to 5.25%, depending on quality and leverage. Stay tuned.  By David R. Pascale, Jr. , Senior Vice President at George Smith Partners