On this day in 1920, the 19th Amendment was ratified, securing women's suffrage. In less than three months' time, many women will vote for the first female in U.S. history that serves as the presidential candidate of a major political party. It took 96 years for this evolution to play out. It took about 96 days for the Federal Reserve Open Markets Committee (FOMC) to make a 360-degree change in its economic outlook.
Back in May, the FOMC was waiting for economic data to provide a backbone to a widely-anticipated rate hike at the June meeting. As you remember, the FOMC instead cut its economic forecast at their June meeting and held rates steady in the wake of a woeful May jobs report. Then a surprise Brexit vote result further clouded the outlook.
Yesterday at 2 p.m. (EDT), the FOMC released minutes of its July meeting. If Treasuries are any proxy, investors are betting the FOMC will not feel obligated to raise its target interest rate to offset inflation, even as their outlook on the domestic economy improves. After the minutes were released, yields on the two-year UST, the notes most sensitive to policy expectations, tumbled.
Naturally there is conjecture; while some investors would say water surrounds the island of U.S. economic growth, others are arguing it merely is not land. In other words, both hawks and doves see commentary in the minutes that support their position.
What isn't debatable in this season? Corporate bond yields. As we saw earlier this week, the 10-year BBB is re-approaching July lows, which are, to be sure, the lowest yields these bonds have ever registered. The spread between 10-year BBBs and 10-year USTs has now declined more than 100 basis points since their highs this past January.
In a market where conviction is less obvious, volatility has crept in. Thankfully, the proxies our market is held against are experiencing volatility that has, on balance, driven yields quite lower. These are the tailwinds that have supported valuations in an environment of lower liquidity, measured by transaction volumes.
Jimmy Hinton serves as managing director of HFF and is responsible for the firm’s national research efforts. Mr. Hinton works with the executive management team to assist in investor relations and to inform both HFF staff and firm clients with in-depth analysis of economic, property and capital market trends. He is also responsible for providing extensive market reports, client presentations and deal-specific analysis for debt placement and investment sales assignments. Mr. Hinton’s responsibilities include substantial interaction with pension funds, life insurance companies, regional and CMBS lenders, REITs, foreign investors and private equity funds.
During his tenure at HFF, Mr. Hinton has supported the execution of more than 150 commercial real estate transactions totaling more than $4.5 billion in 20 states. Mr. Hinton has experience in fixed- and adjustable-rate debt, mezzanine debt, construction loans and joint venture executions on behalf of clients engaged in the acquisition, development and recapitalization of property types including multi-housing, industrial, office, retail, medical office and storage properties.