CREF Highlights

The Sales & Trading Desk sent a contingent to the MBA’s Commercial/Multifamily Finance Convention & Expo in San Diego last week. At the investor meetings, the tone was consistent: End-money investors are slowly adding to positions in our mortgage space. This optimism, however, was still cautious, given the large, looming, supply of Ginnie Mae product in receivership and the general uncertainty in the broader commercial mortgage-backed security (CMBS) space. Competitor lenders were also less sanguine; pipeline strength felt evenly split between optimistic lenders and those that were not. The backdrop for our market is constructive, as lower supply is paired with stronger demand.

Rate Cuts Delayed by Stubbornly High Inflation

Every inflation metric released last week overshot expectations, proving that pricing pressures remain resilient. The figures further reduce already-slim chances that Fed officials will start lowering interest rates in the near term. Meanwhile, any reacceleration of inflationary pressures may trigger talks about the need for rate hikes. “The evidence from data, our surveys, and our outreach says that victory is not clearly in hand and leaves me not yet comfortable that inflation is inexorably declining to our 2% objective,” Atlanta Fed President (and current Federal Open Market Committee voter) Raphael Bostic said in a speech on Thursday. Bostic added that he “supports beginning interest-rate cuts at some point this summer, though more favorable inflation data could warrant an earlier start.”

We’ve summarized last week’s inflation releases below:

  • Consumer Price Index (CPI) month-over-month (MoM)
    • Actual: +0.3%; Estimate: 0.2%
  • Core CPI MoM
    • Actual: +0.4%; Estimate: 0.3%
  • CPI year-over-year (YoY)
    • Actual: +3.1%; Estimate: 2.9%
  • Core CPI YoY
    • Actual: +3.9%; Estimate: 3.7%
  • Producer Price Index (PPI) MoM
    • Actual: +0.3%; Estimate: 0.1%
  • PPI YoY
    • Actual: +0.9%; Estimate: 0.6%
  • Core PPI YoY
    • Actual: +2.0%; Estimate: 1.6%
  • U. of Michigan 1-yr Expected Inflation
    • Actual: +3.0%; Estimate: 2.9%
  • U. of Michigan 5-10-yr Expected Inflation
    • Actual: +2.9%; Estimate: 2.8%
Trading Desk Talk - Picture1 1

From the Desk

Agency CMBS — The aforementioned landscape for agency MBS remains constructive, with little supply and growing demand. Spreads were broadly flat, week-over-week (WoW).

Municipals — AAA tax-exempt yields were slightly higher across the yield curve, WoW. February has continued the hot start to the year: Primary new issuance is up over 20% this month, compared to February 2023; year-to-date, issuance is up over 30% compared to the same period in 2023. Municipal bond funds saw back-to-back weeks of outflows—last week’s totaled $142 million. High-yield funds, on the other hand, saw inflows of $196 million last week. With the lower likelihood of a recession and the stronger-than-anticipated economic data coming out, expect continued inflows into such funds. 

The Week Ahead

This week’s economic calendar is light. Headliners include the Conference Board’s Leading Economic Index, the Chicago Fed’s National Activity Index, and jobless claims, released by the U.S. Department of Labor.

Economic Calendar

Leading Economic Indicator2/20Jan-0.3%-0.1%
Chicago Fed National Activity Index2/22Jan-0.15
Initial Jobless Claims2/22Dec218k212k
Continuing Jobless Claims2/223-Feb1,878k1,895k
S&P Global US Manufacturing PMI2/2227-Jan50.450.7
*Source: Bloomberg

Summary of Global Fixed-Income Markets

Source: Bloomberg

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