Today the 10YR started at 3.08%
After Lunch it has jumped up to 3.17%, this is drastically hurting anyone who was looking to get a loan today. We've had some borrowers opt to put deals on hold this afternoon already just to see if it goes lower. I work in production for a DUS lender.
Das ist nicht gut.
How does this affect some of your businesses?
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Do you work exclusively as DUS lender? You know their competitor offer index lock and rate lock right?
My current role, yes.
And I do know that they offer index locks and SERLs. But that fact doesn't change a deal when it is DSCR constrained, a 11bps rise in treasuries causes the amount to be cut more. It also would convince borrowers to either hold off on refinancing or force their hand in selling. Not to mention killing a host of other opportunities that don't work at higher rates.
Well it depends on the property
I’ve seen some money losing deal lately at +130-140 net spread vs +180-200 before, pricing is very competitive right now, the rate that borrower get is not necessarily higher
Edit: Forget it
If X is 300 bps (which I assume you will be getting for your new construction from a portfolio lender), then arent both the same? 300 bps + Libor and 200 bps + Treasuries are the same thing.
What are you talking about? Indexes are all correlated, the spreads are what differs (if one chooses 1 month LIBOR vs. 6 month LIBOR vs. 10 year treasury.) So to say LIBOR is high, but not 3.15 high (for 10 year) makes no sense.
exactly, for a second I thought I was crazy and was wondering why is 1 month libor is being compared with 10 yr treasury or swap.
Throwing our leveraged returns completely outta whack for certain deals. Returns that we normally approve during the week to show to IC the following week have to be re-adjusted and re-approved at the end of the week because libor is fluctuating so much. Just creates more work and stress for us peons -___-;
Dude that Libor though, it seems unstoppable in terms of how fast it'll rise.
One of my buddies who works for in capital markets for a large MF developer was gloating about the 120bps+libor spreads they were getting at the beginning of summer on their construction loans. I know they have caps in place but still Libor has shot up quite a bit since then that I got to believe it would start to make FRM's look a bit more attractive/predictable.
I work in lending, and every single deal we have under app and are getting ready to close on has lost significant proceeds, due to treasuries. Borrowers are pissed, to say the least.
We have had several clients emailing/calling to ask for a spread reduction due to the rise in treasuries. It's not been very fun to tell them no because the overall coupon is built of a spread + the 10YR, and every client is getting boned by the 3.22% 10YR Treasury.
One deal I was looking at came back on the market because ALL of the buyers fell out of contract after the rate spike this week. They are now back out to collect revised (read: lower) bids.
We're in this same position... Finished second on a deal we really liked last week. We underwrote pretty conservative debt assumptions and feel like we have a good chance for this to circle back to us.
Having plenty of DSCR coverage is always a great thing when it comes to underwriting a deal.
Any opinions on whether rates will trend down in the next few weeks, or keep rising? UST+ swap is at 3.28% today. And we dont lock rates in CMBS.
This is actually very normal for this time of year. Final quarter of the year always seems to see treasuries selling. Often February to fall rates fall or are neutral.
Some of this is tariff related. China has been buying fewer treasuries some of it seasonal.
At this point I would turn fairly neutral on rates as a decent size move has occurred. I wouldn’t be shocked though to see them rise another 25-35 bps.
A lot of Libor spreads are close to fully pricing in 3 hikes next year. That is a little aggressive fundamentally as rates at that level don’t price in any disaster scenarios like eczoning slowing or a 9/11.
Also blame trump and his deficits. It’s stupid to be running cyclically high deficits at this stage of the cycle and that puts more pressure on rates.
Spreads are starting to tighten a bit. Got a quote for one of our agency facilities where the spread was sub-130 on 7 year money was 150 a week or two ago.
I work at a bank. I guess thats one way to make it work when deals are DSCR and DY constrained. but we are approaching a point where there is literally no meat left on the bone for lenders.
Bank can’t compete with life co and agency on pricing, there is still room for life co and agency to go lower
How big was your overall facility? That is pretty good. We lost a facility bid earlier this year that had a sub ~120bps spread over the 10YR with proceeds just at $600MM. We weren't too happy about losing that.
Hate libor, it's a trash index...all of them. Read all my prior posts about Libor, it's an index than in the US was reserved for the world of subprime home loans in the 90's. It's a roller coaster hair pulling index. Sure it's great on the downside, but the upswing will send you to the poorhouse.
I realize institutions use libor loans, but hey, it's not their money. I know zero HNW investors in SoCal with Libor loans. Literally none. They're all long term fixed. Why? Cause it's their money, their debt.
Back in the S&L days COFI was the index I saw on ARM products. No major lows, no major highs. Even home loans were tied to COFI for decades.
Just looked at all libors...they're only 50% of what they were in 2007. Get ready kids...hope you got some nice first/annual/life caps.
The law of supply and demand is immutable. As rates rise, prices will eventually be impacted and the world will be in balance.
It's good to be getting back to a more normal interest rate environment after a bizarre decade.
I was explaining this to some of the younger analysts in our office. Their MB's were rightfully pissed about the rise in the 10YR, but I told them that we've never been around for when interest rates were much higher and not as low as they've been for the better part of ~8 years.
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