Mortgage Banking

Making sense of commercial real estate finance.

Mid Year Predictions

Posted by Jordan Crouch on June 2, 2008

One CMBS lender’s prospective :

Short and long term rates have started to increase but we feel that long term rates will increase further than short term rates therefore steepening the yield curve.

Short term rates should not increase dramatically as the Federal Reserve is forced to keep the Federal Funds rate unchanged.  Given the high and rising oil prices we feel the Federal Reserve will continue with the easy monetary policy as increased Federal Fund rates would slow the economy.

In the last couple of weeks, the 10 Year Treasury has started to climb.  In January 2008 we said the 10 year Treasury was going to 4.5% by year end 2008.  We will wait and see if we get there but the 10 Year Treasury pushed through 4% and is headed higher.

CMBS(conduit) is still trying to get back in the game.  Spreads are 300 bps plus on all product types.

Fannie, Freddie and FHA are all very active, spreads have stabilized for now.

I agree with what he said. Short term rates will remain near the current levels because the FED cannot raise interest rates yet and risk slowing the economy. As the economy does improve, macro investors will move their investments from the longer term T-bills into other more attractive assets. With more investors selling their T-bills, the price will lower sending the corresponding T-Bill rate higher.

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