Investors abandoned risky assets after rising U.S.-China trade tensions quashed expectations of a near-term resolution, feeding concerns about economic growth and corporate earnings prospects. U.S. Treasury prices climbed amid a flight to quality, sending the yield on the benchmark 10-year note tumbling 10 basis points (bp) to 2.30% for its lowest level since 2017. And the two-year yield closed 11 bp lower to 2.11%. The 10-year Treasury yield has declined more than 15 bp since May 6, when the tariff dispute escalated.
Treasury investors said the recent bond-market rally may reflect the degree to which the fixed-income market is looking past the inflationary impact of higher tariffs, which should send debt prices lower and yields higher, to focus on the deflationary impact of a global trade slowdown and slower growth. Speculators believe there is a chance that the Federal Reserve will cut interest rates this year — marking the first rate cut in a more than decade — as the central bank reacts to increasing evidence of sluggish growth.
The decline in Treasury yields (and similar decline in the swap rate) has been an unanticipated benefit to CMBS conduit loan borrowers. Interest rates on CMBS conduit loans, which climbed over 5% for most of 2019, have suddenly dropped to below 5% for full-leverage CMBS conduit loans and into the 4.5% area for low-leverage CMBS conduit loans. For a free, no-obligation rate quote, contact Mike Sneden at email@example.com, Dennis Suh at firstname.lastname@example.org Jay Bhakta at email@example.com.