Market Recap & Outlook
As we wrap up the quarter, markets remained surprisingly stable despite last week’s chatter. Short-term rates saw a modest rally, with 2-year yields down 4 bps and 10-year yields down 2 bps. Over the month, the 2-year dropped 10 bps, while the 10-year swap rate was nearly unchanged—an unexpectedly calm backdrop given ongoing economic uncertainties.
Key Data from Last Week
- Consumer Confidence fell to 92.9 (the lowest since January 2021), reflecting ongoing concerns.
- PCE Inflation (the Fed’s preferred measure) came in largely as expected:
- Headline PCE: +0.3% MoM
- Core PCE: +0.4% MoM (a slight uptick)
- Annual Core PCE: 2.8% (up 10 bps)
- Personal Income saw a slight increase, while spending was lower than anticipated, aligning with weaker consumer confidence.
This Week’s Focus
- Jobs Data: JOLTS report on Tuesday and Non-Farm Payrolls on Friday (expected: +138K jobs, unemployment steady at 4.1%).
- Tariffs: Markets await Wednesday’s official announcement on new trade tariffs, a potential driver of volatility.
Market Trends
- Rotation to Bonds: With rising concerns over tariffs and economic slowing, cash is moving out of equities into Treasuries.
- Agency & CMBS Activity: Some borrowers are shifting from agency to CMBS loans due to faster execution times.
- Defeasance & Cash Buyers: Increased defeasance activity as cash buyers dominate sub-$5M deals, particularly in triple-net retail properties.
Client Strategy Reminder
- Cap Renewals & Escrow Utilization: Borrowers with 2-3 years left on floating-rate agency loans should explore using built-up escrows to fund cap renewals, preserving cash flow and reducing ongoing escrow burdens.
