The Fed increased rates today by 25 basis points, as expected, increasing their target rate to 3.75% – 4.00%.  Equities are mixed on the news while the 10Yr Treasury rallied to just inside of 5%, noting that the 10Yr hasn’t exceeded 5% at its daily close for >19 years (July 19, 1997). The Fed clearly signaled another 25bps hike before year-end.  While the Fed characterized inflation at “elevated,” they also noted that, “Productivity growth is strong, and capital investment is robust.”

For CMBS, we anticipate the following likely outcomes:
1) Increased pressure on already stressed refinancings, leading to more DQs and liquidations;
2) Extended duration in SASB floaters; and
3) Increased floating SASB issuance, taking advantage of the delta between one-month SOFR (3.89%) and the 10Yr Treasury of 4.95%