A number of our clients are calling concerned over the rise in the 10-Year Treasury and 10-Year Swap that has occurred over the past few months. After touching a 2017 low of roughly 2.00% in September 2017, the 10-Year Treasury and Swap have steadily risen to 2.90% as of last week. While the rise of 90 basis points is significant, the absolute levels of the 10-Year Treasury and Swap, even at 3%, are well below historic levels. The graph below is quite telling. It plots the 10-Year Treasury rate since 1962. Note that the range of 2.0%-4.0% has not been seen since 1962, and the range of 2.0%-4.0% has only been prevalent since the Great Recession.
As it relates to overall interest rates on CMBS conduit loans, much of the increase in the 10-Year Treasury and 10-Year Swap rates has been offset by declines in loan spreads. Since the interest rate on a CMBS conduit loan is set by adding the 10-Year Swap rate and the loan spread together, if loan spreads are declining while the 10-Year Swap rate is increasing, they can offset each other. This is what is occurring in the CMBS market. Indeed, strong demand for CBMS securities and competition for good loans are resulting in declining loan spreads, which is benefitting borrowers despite the rise in the 10-Year Treasury and Swap rates.