Last week was relatively quiet until the CPI release on Thursday, which was softer than expected across the board and a negative headline number. Short-term rates came down 11-12 BPS on the back side of this release. Friday, we got PPI figures, which actually came out elevated but didn’t change the direction of the rally. The market seems to be excited about the potential for rate cuts this year. On the week, 2-year Swaps closed down 17 BPS and 10-year Swaps down 11 BPS, further steepening the curve from the strong rally on the short end.
This week will also be somewhat quiet on the economic data front. We have Retail Sales data tomorrow, with the general sense that the economy is softening. There will be a variety of housing data points released this week, as well as some earnings numbers.
This morning we’ve seen a bit of a “Trump Trade” with Treasuries selling off and rates ticking up slightly on the long end of the curve, although it seems to be easing off now. This is being contributed to the increased likelihood that Trump will be elected, since a Trump presidency is viewed as inflationary.
Short-term hedging still makes a lot of sense, with the potential for up to 50 BPS of rate cuts this year. CMBS apartment distress is up 185% in the last 6 months, per CRED iQ. CMBS and bridge remain options for slightly distressed multifamily, with spreads in the low to mid 200’s for CMBS and high 200’s to low 300’s for bridge. Many buyers are realizing they need to put their money to work, which is driving activity. Bearish folks believe we could be looking at hundreds of bank failures, but there’s potential absorption on the horizon as well.
