In the wake of “Brexit,” Great Britain’s decision to exit the European Union (EU), the 10-year U.S. treasury yield had its largest single-day decline on Friday, and then on Monday, the yield fell to 1.46%, approaching its all-time intra-day low of 1.39% recorded in July 2012. At that time in 2012, investors were afraid the EU might unravel as Greece and Spain were struggling with debt loads and surging bond yields. Investors flocked into U.S. Treasuries as a safe haven. The results are the same today with investors moving into 10-year treasuries in the aftermath of Britain’s vote to exit.
Great Britain is the third-largest country in the EU by population. And its decision to exit the EU has caused considerable concern, much like what occurred in 2012 when Greece and Spain were struggling and investors were afraid the EU would unravel. Now that Great Britain has voted to leave the EU, it will no longer have to contribute billions of pounds a year to the EU’s budget.
In the United States, commercial real estate loan rates are expected to decline in the near term, as rates on commercial real estate loans are typically tied to the 10-year treasury or the 10-year swap, both of which have fallen in tandem in the days after Great Britain’s vote to exit the EU. However, offsetting the benefit of lower treasury rates could be rising loan spreads. See our 6.24.16 Market News comment for further details.