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From the Capital Markets Desk


Merchants Capital, a subsidiary of PR Mortgage & Investments, serves as the conduit between PR Mortgage customers and the real estate capital markets, by marketing GNMA securities directly to Wall Street. In 2015, Merchants Capital issued over $1.2 billion in GNMA securities, which represented 6% of the market nationally. This production and direct access to capital markets allows PR to offer industry leading rates.

The story of the year in financial markets has been global tumult and the resiliency of the domestic US economy. As the prolonged slump in commodities has taken its toll on developing economies, the Chinese economy has fared particularly poorly. China has continued accommodative monetary policy, in an attempt to prop up slow growth and stabilize markets. In Europe (and now Japan), the Central Bank has kept negative interest rates to stimulate long-running stagnant economies.

With fewer monetary tools remaining to jumpstart international economic activity, the US Federal Reserve has been hesitant to continue to raise rates domestically. The job market has been steady and improving in the US, although wages have lagged. There are positive signs that inflation is starting to tick up. How immune is the US economy to sickness abroad?

The stock market has been volatile in Q1, demonstrating a high correlation to rock bottom oil prices. In fixed income world, spreads have widened across asset classes- bond prices fall as yields rise. The riskiest bonds have done the worst.

We have seen a “flight to quality” assets, which has resulted in increased demand and lower yields for US Treasuries. The 10 year treasury, an important benchmark for pricing real estate bonds has settled below 2.00% for much of the year. GNMA offers “risk-lite” bonds, with the explicit backing of the US Government. So, GNMA rates have been relatively better than other capital sources. In the chart below, you can see the widening spreads for GNMA permanent and construction loans. We have seen spreads tighten in the first few weeks of March, and we are optimistic for even lower rates for our borrowers as the summer approaches.


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