Posts Tagged ‘treasury notes’

Is the Fed About to Hike Its Federal Fund Rates?

Wednesday, May 12th, 2010

Economists can’t decide if inflation will force the Fed to raise its interest rate.  The recent release of minutes from the Federal Reserve’s March meeting may hint that the nation is experiencing a sustainable recovery and is possibly facing upwards inflationary pressure.  The yield on 10-year Treasury notes has already surpassed four percent for the first time since last June; oil and copper traded at their highest prices in 18 months.

With Labor Department data showing increased private-sector hiring (the fourth time in five months), some traders are betting that the Fed will have to raise its target federal-funds rates to 0.5 percent by November.  Even so, Fed Chairman Ben Bernanke doesn’t appear to be in a hurry to increase interest rates too quickly for fear of putting the brakes on the economic recovery at a time when the unemployment rate is hovering around 10 percent.  Job openings climbed in several sectors of the economy in February, including retail, manufacturing, transportation, restaurants and hotels, according to the Labor Department.

“In the market’s mind, the Fed is always about to hike,” said Ethan Harris, chief economist at Bank of America Merrill Lynch.  “But the Fed is in a very different mindset right now.”  Harris expects the Fed will raise its interest rate to one percent at the end of 2011.  Doug Roberts, chief investment strategist at Channel Capital Research, agrees.  “Concern with unemployment, which is expected to decrease slowly at best, indicates rates may remain low for much longer than people anticipate unless we get inflationary pressures,” Roberts said.

CMBS Activity Expected to Remain Slow in 2010

Thursday, February 25th, 2010

CMBS transactions might total just $15 billion in 2010Commercial mortgage-backed securities (CMBS) are expected to remain below $15 billion in 2010 as borrowers cope with falling property values.  According to Alan Todd, a JPMorgan analyst, debt sales backed by CBD office, hotel and shopping center loans could be as low as $10 billion this year.  Aaron Bryson of Barclays Capital is more optimistic, predicting transactions totaling approximately $15 billion for the year.

The federal government has promised to revive the $700 billion CMBS market, even as property values fall and securing loans is difficult.  In 2007, a record $237 billion of debt was sold.  That fell precipitously in 2008 to just $12 billion and even further to $1.4 billion in 2009.  Activity isn’t expected to increase until the second half of 2010.

“The banks would like to lend,” Todd noted.  “There are fewer properties to lend against.”  He pointed out that many owners went heavily into debt during the boom and now cannot locate properties not currently encumbered to lend against.  The dearth of new loans cuts off funding to borrowers whose debt is maturing.  Approximately two thirds of loans bundled and sold as securities – totaling $410 billion — may require additional cash as property values fall and underwriting standards get tougher, according to Deutsche Bank AG research.

Moody’s Investor Services reports that commercial real estate prices in the United States are 42.9 percent lower than their 2007 peak.