HFF Research Update for September 21, 2016: Bank Notes

Wednesday, September 21, 2016

Weekly insights on current research in the commercial real estate industry from HFF Managing Director of Research Jimmy Hinton. View Daily Rates on the HFF website or access the HFF Daily Rates App in iTunes.

On this day (plus one) in 1789, the Postmaster General was promoted to the U.S. Cabinet. The chief executive of the Post Office was once an elite position, first held by Benjamin Franklin, but now the department unfortunately serves a representation of bloated, obsolete bureaucracy. Even in the modern technological age, however, some messages must be sent the old fashion way, and, recently, investors have been receiving their cues from central banks across the globe.

In the past week, both the Bank of Japan and the Bank of England have rendered important decisions relating to quantitative easing (QE) and interest-rate targets. Around midnight local time, Japan's central bank announced their intention to continue buying bonds with a focus on targeting a 0.00-percent effective yield on their own ten-year sovereign bond. Last week, the Bank of England opted to hold its target interest rate steady, having cut it in August immediately following the Leave vote, but maintained flexibility surrounding future easing if the United Kingdom economy starts to show consistent weakening. The GBP:USD is currently trading just below 1.30 – a multi-month low.

No later than 2 p.m. EST today, the FOMC will announce its decision to hike or not to hike Fed Funds Target Rate. Janet Yellen will speak a half-hour later.

No matter the result, Yellen's commentary will be important, so listen in if you can. Odds makers have assigned a 20 percent chance of a hike. In a fit of cynicism, this makes me more confident it will happen. Employment is currently full, and recent employment performance, if carried forward, could sustain both the unemployment rate and wage growth. I will concede inflation is below target but delaying a hike further into fall runs the risk of politicizing the debate ahead of the November election.

Given the size of Japan's QE program, it is possible the long end of the curve could experience some lift in yields, a theory some extend to corporate bonds here in the United States. Whether such upward pressure could be offset by thirst for dollar-denominated fixed income assets remains to be seen.

Ad interim, I am focusing acutely on the 10-year UST yield and that of the 10-year BBB corporate – and the spread between the two. Mind the long-end of the maturity curve and keep your ears pricked for the FOMC announcement this afternoon.

About Jimmy Hinton

Jimmy Hinton serves as Managing Director of HFF, 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.

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