4.30.14: Swap Rates Decline on Poor GDP Report

Swap rates, an important financial index that is used to set interest rates on CMBS conduit loans, fell this week after the government reported annualized Gross Domestic Product (GDP) growth of a mere 0.01% in the first quarter of 2014, according to the “advance” estimate released by the Bureau of Economic Analysis (BEA). In the fourth quarter, GDP increased 2.6%.

“In response to the report, Swap rates fell,” noted Michael D. Sneden, Executive Vice President at ValueXpress. “The market is indicating that slow growth means interest rates can remain low for perhaps a longer period of time, and the Swap rate adjusted to reflect that thinking.”

Economists blamed frigid winter weather for depressing first-quarter results, but not everyone is convinced that weather tells the whole story. Forecasters were anticipating growth around 1%. The BEA found weakness across a number of indicators, including trade and inventories, non-residential fixed investment and lower government spending.

After the report released on Wednesday, the 10-year Swap rate declined intra-day to 2.70% before closing at 2.77%. The index has hovered in the 2.70%-2.75% range since the report was released.

“This is good news for our CMBS conduit loan borrowers,” commented Steve Lombardi, Senior Loan Originator at ValueXpress. “We are continually advising our clients that eventually interest rates will increase as the economy grows, but they don’t want to listen. This less-than-stellar GDP report will hopefully push out the date when rates move up.”

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This entry was posted in CMBS, CMBS Securities, Commercial Lending, Commercial Mortgage-Backed Securities, Michael D. Sneden, News & Recent Closings, The Banker's Mortgage Conduit, Valuexpress and tagged , , , , , , , , , , . Bookmark the permalink.

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