The yield on the benchmark 10-year Treasury note fell on Thursday, May 15, 2014 to close at 2.50%, a low not seen since last October. Intraday, the note touched 2.47%. Although investors have been expecting rates to rise, the bond market is not cooperating, confounding economists. Weak economic growth is the consensus opinion as to why rates remain low. Pushing down the rate further this week was news that global central banks have signaled that they would be highly accommodative in their monetary policies as their economies wrestle with the same slow-growth issues as the United States.
“Since the 10-year Swap rate tracks the benchmark 10-year Treasury note, the Swap rate has fallen as well,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “The 10-year Swap rate is roughly 10 basis points (bp) higher than the 10-year Treasury note, which means the index is roughly 2.60%.”
“CMBS conduit loan borrowers should be elated with the current confluence of events,” notes Gary Unkel, Senior Loan Originator at ValueXpress. “CMBS bonds are selling at declining spreads, and those declining spreads are reducing spreads to borrowers. In combination with the declining Swap rate, borrower rates are down 50 bp in the last three weeks, below 4.5% for larger, lower-leverage transactions and about 4.5% for small balance (less than $10 million) full-leverage deals.”
“We are all out there banging the drums at our customers to be sure they are aware of the great rates, and hopefully, many are reading this note,” said Steve Lombardi, Senior Loan Originator covering the New England market for ValueXpress.