Fed Watch: What to Expect After the 50bps Cut
On September 18th, the Federal Reserve cut rates by 50 basis points, and the markets responded swiftly:
S&P 500: Up 2.14%
Dow Jones: Up 1.45%
Nasdaq: Up 2.73%
The 2-year/10-year Treasury spread has reached +23, its highest since mid-2022. Tuesday marked the fifth consecutive session where the yield curve steepened. The 10-year Treasury yield hovers around 3.75%, as the market awaits more data to gauge the likelihood of another 50bps cut at the upcoming November 7th meeting.
Futures markets are currently pricing in a 60% chance of another 50bps cut in November. However, with 41 days to go, key economic indicators like the August JOLTS report (10/1), September employment data (10/4), September CPI (10/10), and PPI (10/11) could impact rate forecasts. Keep an eye on the CME Fedwatch Tool for real-time updates on rate cut odds.
With falling treasury yields and compressing spreads, interest rates are at their most attractive levels in nearly two years!
Life Companies: Preparing for 2025
As we approach the end of the year, Life Companies are shifting their focus toward 2025 allocations. Corporate bond spreads, a key pricing factor for Life Company investments, remain stable. We are seeing quoted rates between 5.00% to 5.60% for loans with 65% leverage or less. Life Company spreads range from 140 to 225bps, depending on the deal profile, size, and leverage. Top-tier pricing is still available at sub-60% LTV, with rates in the low 5% range.
Banks: Gearing Up as the Yield Curve Normalizes
The normalization of the yield curve is encouraging banks to become more active. While deposits and client relationships remain important, banks are showing more appetite for deals. Current quotes are in the 5.50% to 6.10% range for properties with strong tenant mixes and stable collections. Fixed-rate programs for banks typically offer 3-, 5-, and 7-year terms with step-down prepayment options. Floating rate options hover around 275-350bps + SOFR.
Debt Funds: A Growing Force
Debt Funds have become more competitive as SOFR continues to drop. They are offering 60-70% loan-to-cost leverage, primarily targeting stabilized assets or properties with in-place cash flow, particularly in multifamily and industrial sectors. Spreads typically range between 265-425bps over SOFR. On the multifamily side, preferred equity positions behind agency senior loans are becoming increasingly popular.
CMBS: Favoring Long-Term Plays
CMBS lenders are showing a preference for 10-year terms, with shorter terms like 5- and 7-year deals being harder to price. While spreads in the CMBS market can be slow to adjust, recent moves have been relatively contained. We are seeing rates in the 6.00-7.00% range, depending on loan size, property type, and debt yield. Loan terms typically range from 5-10 years, with up to 75% LTV and full-term interest-only options available.
Agencies: Freddie and Fannie in Focus
Freddie Mac has reached its cap for the year, while Fannie Mae still has room for more activity. Strong flows have pushed spreads and terms into more conservative territory, but all-in rates are the most competitive we’ve seen in years.
Fannie Mae: New business volume through August stands at $27.7B (compared to $35.3B in 2023).
Freddie Mac: Business volume has reached $29.2B (up from $28.5B last year).
Agency pricing ranges from 5.00% to 5.60%, and rate buydowns are becoming an increasingly attractive option for borrowers, with rates dropping as low as 4.70-5.30% in some cases.
Stay Informed with INSIGNIA
As always, INSIGNIA is here to guide you through the complexities of today’s debt market. Whether you’re seeking to refinance, secure new capital, or explore rate buydown opportunities, our team has the expertise to help you navigate the best financing options available.
