The economy’s fundamentals may not be as good as everyone believes they are, says Thirty Capital CEO Rob Finlay in Monday’s CRE Capital Market Report.

In the regular weekly meeting with his team of analysts, Rob commented on a range of numbers, including interest rates and some over-leveraging of assets, and indicated that the market could overheat in the near future.

The corporate bond spreads are as tight as they’ve been since 2007 and, with the overall struggle to find decent yields for investors, an asset bubble could be on the horizon.

Overall, the last week was quite on the data front, with very little change in interest rates. The ten-year closed last week at 1.56%.

This week will be very busy, with durable goods stats being released on Monday. Tomorrow, consumer confidence figures will be issued, and on Wednesday a Fed meeting.

Thursday sees GDP figures and initial jobless claims updates. On Friday, a lot of data will be released, including personal spending stats, Chicago PMI, PC deflator, and consumer sentiment.

Comments Bryan Kern: “We've been rate-bound between around 1.55% and about 1.70% for the past three weeks now, so we'll see if some of this week's data changes any of that.

“The other thing we want to look at is following the discussion around President Biden's capital gains tax.”

Rob notes that it appears the Fed’s stance is not to do anything on rates.

“I’ve noticed the yield curves come back a little bit, it's gone down a little bit, as well. So I’m still not sure if we're going to get that big of a spike with the data that's coming out on the ten-year rates.”

There has been a bit of pressure on short-term rates, with the lack of SPE issuance, and short-term issuance. Eurodollars are starting to price higher, which isn’t inline with the Fed guidance.

Observes Jay Saunder: “I think the market anticipates the Fed moving a little more quickly than what the Fed’s are guiding towards.”

April has been a busy month for Thirty Capital. Analyst Jeff Lee notes that the firm will probably complete double the monthly averages from the first quarter. “It’s good to see, but how that sustains through 2021 will be interesting,” says Jeff.

Rob ads: “CMBs are pricing wider. Fannie and Freddie deals are priced a little bit wider. But I think we're where the main hiccup is for all of those are just the, the underwriting constraints are pretty tough on those and on debt service reserve.

Listen to the full episode for a comprehensive discussion on the economy, including what’s happening in commercial real estate.

This week on the CRE Capital Markets Report with Thirty Capital, the team of analysts explores the combination of an improving economy, and increasing inflation, and a fragile commercial real estate market. Analyst Bryan Kern highlights strong economic data, with an unexpected increase in retail sales and a strong GDP forecasted for 2021. A decrease in jobless claims numbers since the start of the COVID-19 pandemic in early 2020 added to the good news.

However, Bryan notes that last week also saw the 10-year Treasury drop by about 10 basis points, probably pointing to the fact that the Federal Reserve isn’t planning on responding to increasing inflation anytime soon. This is partly due to the fact that no other major economy has attractive yields. So fixed income investors took advantage of a spike up to about 1.72% on the ten year. Bryan predicts that investors and consumers can expect minimal volatility or rate changes in the near future.

Thirty Capital’s CEO Rob Finlay points out that the big commercial market alert last week led to many consumers selecting floating rates instead of fixed rates on loans, even though fixed rate is currently inexpensive. A two-per-cent 10 year Treasury rate is possible by the end of the year.

However, Rob notes that in spite of the bright economic outlook, the picture for commercial real estate is uncertain. He doesn’t foresee workers returning to officers anytime this year, so there’ll be no increasing footprint in commercial real estate.

Explains Rob: “People still aren't paying their mortgages and people still aren't getting kicked out of apartments. The real estate market is really going to be very fragile. So I think, quite frankly, people are liking floating rate loans because they can really get dinged hard on a fixed-rate loan.”

Going forward, the economy is expected to experience massive growth in 2020, with predictions for GDP at around seven percent in Q1, ten percent in Q2, and well over five percent for the remainder of the year.

Analyst Jay Saunders points to historic trends, especially the period right after the Great Recession. “Everyone's trying to figure out the Fed at the moment. That's clearly the only game in town - who's buying bonds. They're going to let the rates run for a long time for the foreseeable future.”

Analyst Jason Kelley sees rates moving a little bit higher, but not taking off. I don’t see the old days of three and fours. There is going to be some pressure to move up with the short-term inflation. But I think we're going to hit a plateau once we get there.”

The team analyses and shares their views on:

• What actions the Feds may take on rates in 2021
• The likely potential for low floating rates for a long time to come
• Whether borrowers should be looking for floating-rate deals
• What kind of rate deals may appeal to borrows seeking a longer-term loan
• The potential for most consumers to select floating rates over fixed in the foreseeable future.
• Despite the lack of volatility, market conditions will be very interesting for some time to come.