"10-Year Treasury Rate"
The 10-year Treasury yield ended Monday at 2.50 percent, near its low for the year despite impressive stock market gains during September and a recent stream of economic data suggesting the economy will avoid a double-dip recession. Strong demand for U.S. government debt is all the more remarkable considering the weak dollar and large federal deficit, both of which would correlate with higher yields in ordinary times. But the times remain far from ordinary as evidenced by the recent announcement from the Federal Reserve that it will re-start its program of purchasing Treasury securities. This strategy, known as quantitative easing, is intended to keep long-term interest rates low at a time when the Fed can no longer influence them by reducing the short-term federal funds rate, which is effectively at zero. By keeping interest rates abnormally low, the Fed is trying to provide more juice for the economy and further strengthen the balance sheets of banks so they will lend and corporations so they will hire. Abnormally low interest rates, though a sign of lingering stress in the economy and financial markets, could be considered a boon for commercial real estate by making the returns available from long-term leases to financially strong tenants look relatively attractive. Though inflation fears have abated in recent months, many analysts expect it to reappear as the economy begins to grow faster, which would let real estate reprise its role as an inflation hedge -- another reason that it is attracting investors despite the sluggish leasing market.