504 November 2016 Rates
4.331% – 10 Year Debenture Effective Rate *
4.350% – 20 Year Debenture Effective Rate *
Looking ahead with the New Crystal Ball!
Sometime around 11PM Eastern last Tuesday night we dropped our Crystal Ball into the trash. Having replaced it with a new, upgraded and hopefully more accurate model, we now peer into the unknown or at least the known unknown…and the first thing we see is that the ten-year Treasury yield jumped to 2.138% by the close of trading on Friday. That comes in the context of a multi-decade low of 1.36% dating from earlier this summer.
Chart and Statistical Data is from September 2006 to November 2016
As the chart shows, the jump in rates at the Debenture auction last week was driven by the movement in Treasuries in the aftermath of the election. The good news is that the spread for the Debenture to the underlying Treasury like term was, for all intents and purposes, unchanged. Rates are moving, rather than perceptions of risk. Is this the beginning of a return to a more normative interest rate market? Jeffrey Gundlach of DoubleLine Capital, seems to think so being quoted as rates possibly reaching the 6% range over the next few years, in a Barron’s interview. His perception of the driver is an increase in the federal deficit with inflationary effects and implications. Should the dollar falter, which it emphatically has not-the Bloomberg Dollar Spot Index was up 2.8% for the week-an increasing trend in rates could shift significantly higher.
Thus, what says the new model Crystal Ball? If a more inflationary scenario is on the horizon what better time to acquire hard assets, such as real estate? To do so within a modestly enhanced leverage product and with the long term fixed rates of the SBA 504 is the best play for a small business. Working capital is preserved, long term occupancy costs are fixed, and ownership has an investment with a natural hedge to inflation.
We welcome the opportunity to earn your business
* Note: Rates are subject to credit determination & auction pricing. Past performance is no guarantee of future results.
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