Market predictions to the right, more to the left, and when they are polar opposites concerning one of the major influences on CRE lending rates, it's a conundrum.
The first up was Jeffrey Gundlach, founder, CEO, and chief investment officer of Doubleline, a money management firm that is a big player in the bond market. He said in a December 2023 CNBC interview that when the yield level of the 10-year Treasury market goes below 4%, it sounds "almost like a fire alarm." Gundlach also said he thought the 10-year yield would drop to the low 3s by sometime in 2024. "I think we're talking about a recession next year," he said, also saying that there may be a breakdown of the correlation of strong bonds and strong equities, which usually move in opposite directions.
Then there are the recent comments by Bill Gross on Twitter/X. Formerly called the Bond King when he was at Pacific Investment Management, he has made some apt moves, correctly guessing how the bond market would move since at least last August.
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Gross wrote that the Treasury 10-year with a 4% yield, around which it has lately hovered, is "overvalued," instead suggesting that people buy the 10-year Treasury Inflation Protected Securities, which currently has a yield of 1.8%. "If you need to buy bonds. I don't," he wrote. Or else, he suggested, invest in short-term Treasurys, which have higher returns, and wait for the yield curve to stop inverting — with interest rates on shorter-term Treasurys being higher than with the longer-term ones. Bloomberg noted that investors had been expecting the yield curve to disinvert over the last year.
It might be that many investors are convinced that there won't be a recession in the near future. But while inversion has been a fairly reliable predictor of recessions in the past, it's been far less certain recently. There was a period in 2019 when an inversion happened but the recession that would come was due to the pandemic and implosion of the supply chain. Not exactly what anyone might have expected. And the curve inverted in early July 2022 and hasn't returned to normal.
Perhaps the economy is just acting differently from many previous experiences. One example is how inflation has been coming down without an uptick in unemployment rates. If that is the case, CRE investment decisions could become much more difficult.
As if they haven't been hard enough of late as it is.
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