"10 Year Treasury Rate"
Interest rates paid by Treasury securities increased across the board on Monday as the Federal Reserve’s program to purchase $600 billion of government debt, dubbed QE2 (the second round of quantitative easing), kicked into high gear. The yield on 10-Year Treasuries, to which many residential and commercial mortgage rates are indexed, hit 2.92 percent, its highest level since August 5th. The Fed was anticipating the opposite effect, the theory being that the massive purchase program would raise the prices, and thereby lower the yields, of government debt. The Fed expects lower long-term interest rates to strengthen the labor market, which is one of its mandates. Some private economists and elected officials dispute that, asserting that the program could have the opposite effect if investors lose confidence in the government’s ability to reign in its long-term debt. The weaker dollar, a side effect of QE2, could bolster exports but bring unwelcome side effects such as trade restrictions and currency devaluations among U.S. trading partners. Aside from the publicity that the plan has generated, lower interest rates would be a net plus for commercial real estate to the extent that they encourage more risk-taking by investors, thereby broadening their parameters beyond the core assets that have attracted most of the capital this year.
Source: Federal Reserve, Grubb & Ellis