Long-term interest rates have been moving lower, surprising analysts who expected interest rates and inflation to rise as the economy gains momentum. Falling interest rates also are surprising many who thought the pending conclusion of the Federal Reserve's $600 billion bond-buying program called QE2, i.e. the second round of quantitative easing, would cause prices to fall and interest rates to rise as the 500-pound gorilla prepares to leave the market. The 10-year Treasury hit 3.18 percent on Thursday, its lowest yield since December 7th. Bond traders appear to be reacting to a recent string of disappointing economic indicators – a trend that was called into question by Friday’s report from the Bureau of Labor Statistics showing a solid 244,000 net new payroll jobs created last month. The recent decline in the price of oil and other commodities also is related to concern over weakening economic growth in the U.S. and globally. Crude oil futures trading on the New York Mercantile Exchange ended Friday at $97.18 per barrel, capping the biggest weekly slide in dollar terms since 1983 when oil trading began on the NYMEX. Lower interest rates and stronger job growth can be viewed as the best of all possible worlds for commercial real estate. Lower yields on 10-year Treasuries will keep the pressure off of cap rates and mortgage rates, while stronger job growth will help fill properties with newly hired workers.
Source: Federal Reserve, Grubb & Ellis