Market Commentary 10/6/18

What a difference a few weeks make! It was only a short while ago that we were opining on the dangers of a flattening yield curve. Those fears have all but disappeared as the bond market had a tough week in the face of quickly rising bond yields. Both the 10-year and 30-year U.S. Treasuries hit highs not seen for many years. Rising rates reiterate our belief that interest rates are going up for the right reasons: strong economic data, strong corporate earnings, low unemployment, and manageable inflation.

However, as interest rates continue to move higher, the low-interest rate environment we have all become so accustomed to is affecting both the real estate and equities markets as investors evaluate how much higher interest rates will affect valuation. Buyers may want to use this to their advantage as they negotiate purchases.

The big economic news this week was that The Monthly Jobs Report, one of the most watched economic reports in the marketplace, supported our view that the U.S. economy remains strong. The unemployment rate reached a low not seen in almost 40 years, with a reading of 3.70%. Annual wage growth came in a nudge under estimates which helped to prevent bond yields drifting higher.

This column has been vocal about locking-in interest rates for several months. This week demonstrated how floating interest rates can be so dangerous, especially when momentum is gaining for higher yields. While we believe a lot of the damage has been done with regards to higher rates near term, it would not surprise us to see rates gradually increase in the coming months. With that said, banks need loans and we are working closely with our lenders to find ways to offer highly competitive terms to for our borrowers in the face of higher interest rates.

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