Both the ECB and FOMC are posturing for quantitative tightening. In the turbulent wake, sovereign bonds are experiencing difficulty with their compass. When accounting for smaller day-to-day movements up and down, yields on the 10-year UST have moved more than 45 basis points in the last two weeks and currently hover about 2.3 percent. Meanwhile, corporate bonds around the world are more in favor.
Among the uncertainty relating to U.S. Federal Reserve balance sheet policy (can they really unwind their balance sheet of government bonds in a vacuum of target inflation?) one mantra seems universal: Corporate bonds will be more in favor with fixed-income investors. As a result, we are seeing corporate bond credit spreads reach all-time tights. An equal-weighted 10-year A/BBB bond index has broken down through 150 basis points this week and currently sitting just above 140 basis points higher than the 10-year UST.
Preliminary Real Capital Analytics (RCA) figures suggest U.S. and U.K. year-to-date transaction volumes are off 15 percent and 27 percent, respectively. In an environment wherein equity flows are softer and debt flows remain liquid with still 5.5 months of allocation to deploy, we should see mortgage credit spreads remain very competitive for commercial real estate assets.
The market is accommodative to securing long-term cash returns. Let’s take advantage.
Jimmy Hinton serves as managing director of research for 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.