In the buildup to the 4th of July, US Treasury rate volatility has jumped up to a level that we haven't seen in a while. Rate explosions aren't nearly as much fun to watch as fireworks, and they can be tough to deal with. We want to work with you to help borrowers understand that Fannie Mae's Multifamily platform is uniquely suited to help them manage through this volatility. We do this through risk-sharing, transparency, and stability.
First, here's a summary of what we see as the issues.
Daily moves of one to two basis points (the norm for the last couple of years) have escalated to frequent double-digit moves in yield on the 10-year note.
There are a number of reasons for this volatility:
- uncertainty about timing of the Fed rate increase;
- potential Greek default; and
- perhaps most importantly (and least talked about) a lack of room on broker-dealer balance sheets. Large broker-dealers used to act as a buffer for these rate swings, stepping in when rates rose and selling notes and bonds when rates rallied. Higher regulatory burdens and capital costs now keep them from playing that role.
This change isn't limited to Treasuries. In addition to rate volatility, credit spreads are “leaking” wider across all fixed income sectors. Close to home, the AAA 10-year portion of the most recent new CMBS deal (last week) priced more than a dozen basis points wider than a similar deal a couple of weeks ago. The high-yield BBB-tranche gapped out more than 20 basis points – this was all before last weekend's Greek drama.
It doesn't appear that this climate of uncertainty is going to pass quickly. That's why we want to work together with you to help our borrowers understand both that this market volatility affects everyone, and that Fannie Mae's Multifamily platform is uniquely suited to help.
Our risk-sharing model means that borrowers and lenders aren't exposed to the gyrations of the credit markets – we don't need to sell a B-piece or mezzanine bonds.
High level of transparency
Fannie Mae Multifamily's MBS execution allows the lender to seek multiple investor bids on behalf of the borrower – providing a level of transparency and certainty not available in other CRE lending executions.
Our platform and its features are designed to perform in uncertain markets – for example, the Streamlined Early Rate Lock allows borrowers to lock the whole stack, not just hedge Treasury interest rates.
In situations like this, we can't control the macroeconomic and regulatory influences on our markets, however, we can help our partners take advantage of the safeguards inherent in the Fannie Mae Multifamily platform.
Liquidity is still pretty good in the Multifamily MBS market, and Fannie Mae Multifamily is working hard to keep it that way. Spreads are wider, but the moves have been smaller and less volatile than in other sectors. Investors recognize the quality and stability of Fannie Mae Multifamily MBS – and this also helps stabilize demand. Finally, we're here to help too. In addition to bidding on all Fannie Mae Multifamily production from our lenders, we're here to serve as an information clearinghouse for market color and to help with indicative levels at any time.
Fannie Mae Multifamily partners with our lenders in every market, every day – and we are here to help in every economic climate. Thanks for your continued partnership. Stay safe and enjoy Independence Day!!
Vice President, Capital Market Trading, Multifamily Capital Markets and Pricing
Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Multifamily Capital Markets and Pricing Group (CMPG) included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the CMPG bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the CMPG represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.