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Credit Problems

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A Financial Recap of Summer.

In Washington D.C., politicians played with our national debt ceiling, and conservatives and liberals moved farther away from each other once again. Sentiment and global liquidity worsened over the summer in large part due to the S&P downgrading fiasco. Greece’s, Portugal’s, Ireland’s, Spain’s, and Italy’s financial still status remains questionable as well.

But, a group of leading economists, on September 19th, backed the issuance of euro bonds, not as a way of resolving the currency area’s fiscal crisis, but as way of making the global monetary system more stable.

Yet, Americans still face 9% unemployment and rising prices. This is spilling over to the market for commercial mortgage backed securities as well. The yields on every tranche except the most senior decreased in an issuance from Goldman Sachs and Citi Group over the summer due to credit concerns from traditional investors. The AAA tranche was priced to yield 1.75 percent over interest rate swaps, and the BBB 5 – 5.25 percent.

Furthermore, the $40 billion expected from analysts this year could be in jeopardy, but we are coming out of the “financial crisis of 2008” so it is important to note that $40 billion would still be triple the amount sold in 2010. The Moody’s/REAL Commercial Property Price Index (MDRMNAP:IND) rose 6.3% in May and slightly less in June, the first positive moves in six months and the largest one-month increase since its inception in 2000, perhaps a signal of the times ahead.

French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are convinced Greece will remain in the euro zone, and the American economy will hopefully keep chugging along in the fourth quarter of the year.


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