Rising Treasury Yields Attributed to "Term Premium"

Good morning,

Rising Treasury yields attributed to "term premium"; volatile yields and inflation data leave investors guessing Fed's next move; and Brazilian billionaire takes Miami by storm with new JV. Let’s delve into today’s topics.

📈 Market Update

🆙 Rising Treasury Yields Attributed to "Term Premium"

A recent surge in longer-term Treasury yields has sparked intense debate among investors and Federal Reserve officials over the influence of an elusive variable known as the "term premium." This theoretical component of yields reflects factors beyond expectations for short-term rates, potentially including bond supply dynamics. While some cite models showing a spike in term premiums as the main culprit behind climbing yields, others argue shifting rate forecasts still largely drive moves. Disentangling the murky drivers remains challenging, leaving uncertainty around if and when yields may peak.

🔍️ The Outlook:
The 10 YR UST hit 4.9% yesterday, the highest its been since July 2007. Higher for longer continues to get more and more likely. Stay tuned!

⁉️ Volatile Yields and Inflation Data Leave Investors Guessing Fed's Next Move

Last week brought mixed signals on the inflation and interest rate environment, whipsawing stocks and yields. While September's hotter-than-expected PPI and CPI readings seemed to support further Fed tightening, dovish signals in FOMC minutes and from officials hinted enough hikes may have occurred. Long-term yields fell on geopolitical turmoil, possibly relieving pressure on the Fed. With the likelihood of a November hike dropping, attention turns to upcoming retail sales and housing data to gauge economic strength. For commercial MBS, secondary trading was muted with CMBX spreads mixed. More volatility may be ahead as markets weigh recession risks against still-high inflation in determining the Fed's path.

⛱️ Brazilian Billionaire Takes Miami by Storm with New JV

Brazilian billionaire Daniel Dantas is making his first direct real estate investments in the US through a new Miami joint venture called LORE. Dantas has spent 30 years building his Opportunity firm into a $11.5 billion asset manager, with major land holdings and real estate projects in Brazil. Now LORE, a partnership between Opportunity and Miami's Leste Group, plans to spend over $1 billion in the next 5 years developing apartments, condos and more in the Miami area. Dantas is pushing into US real estate looking for better returns than third-party funds have delivered, reflecting a strategy of lucrative home-market developments and global diversification.

✍️ Further Reading

• REITs Get a Boost From a Flight to Safety (GS)

• Choice Hotels Offers $7.8 Billion in Cash and Stock, $2 Billion in Debt Assumption To Buy Wyndham (CS)

• NYC Industrial Leasing Activity Drops 47% (GS)

• Plano Has Massive Office Vacancies (RD)

• Mortgage Demand Falls to The Lowest Level Since 1995 as Interest Rates Near 8% (CNBC)

📊 Chart of The Day