“Sales of nontraded real estate investment trusts are headed for their worst year since 2002, with the industry on track to raise just $4.4 billion in equity in 2017, about $100,000 less than a year earlier, according to data from Robert A. Stanger & Co.”
“Making matters worse for the industry is that one newcomer to selling nontraded REITs, The Blackstone Group, has the highest sales for the year to date through September. Blackstone had almost $1.4 billion in sales with its new REIT, the Blackstone Real Estate Income Trust, over the first nine months of the year, according to Stanger.”
“That means traditional nontraded REIT managers – including Griffin Capital Co., Carter/Validus Advisors, Cole Capital and others – will likely raise about $3 billion this year, about one third less than the 2016 total. And independent broker-dealers are struggling without the lucrative commissions formerly generated by product sales.”
“In 2002, $3.8 billion worth of nontraded REITs were sold. Nontraded REIT sales were $11.5 billion in 2007, according to Stanger, just as the real estate crash was beginning. Sales of nontraded REITs hit their peak in 2013, when independent broker-dealers sold $19.6 billion of the products.”
In addition to an accounting scandal at industry behemoth, American Realty Capital (ARC), new securities rules have hurt sales.
“New securities industry rules and regulations, including the Department of Labor’s fiduciary rule, have hurt sales of high commission products like nontraded REITs. The fiduciary rule has flattened the levels of commissions that brokers charge clients for products such as mutual funds.”
“The Financial Industry Regulatory Authority also recently put into place a new rule, known as 15-02, that makes pricing of illiquid securities like nontraded REITs more transparent to investors. In the past, client account statements showed illiquid securities like REITs at the value they were bought by the client and did not subtract commissions, which were high.”
“With the DOL fiduciary rule flattening commissions, many REIT managers began selling T shares, which cut the upfront load by more than half. After initially paying a 3% commission, the broker is then paid up to 7% over several years. An annual commission of 80 basis points is paid from the return generated by the REIT manager.”
“Many economists have long predicted an end to the dollar reign that was established after World War II, especially after President Richard Nixon unpegged the greenback from gold in 1971. The creation of the euro in 1999 and the breakneck growth of the Chinese economy led many analysts to say the dollar would need to share the limelight.”
“But the euro became politically unpopular during the European debt crisis, and Chinese capital controls to peg the yuan are anathema to global investors. Meanwhile, the share of official reserves held in dollars recently stopped its multiyear decline, and in the second quarter of 2017, foreign-country dollar-denominated debt rose to an all-time high of $8.6 trillion, according to the BIS.
“’The dollar’s downward trend of the last 40 years is over,’ said Paresh Upadhyaya, fund manager at Amundi Pioneer, Europe’s largest asset manager.”
“A one-currency dominance challenges economic models that see global financial markets as a flat surface where, on average, investors shouldn’t be better or worse off depending on which currency they trade.”
“The thefts — which occur on average more than once an hour and are often staged by scores of criminals carrying assault rifles — have reportedly forced the national postal service to stop street deliveries in some neighborhoods of Rio, while supermarkets have raised their prices by up to 20 per cent to pay for the losses.”
“Recession-induced budget crises across governments in Latin America’s largest economy have led to the spike in crime, analysts say. One state — Espírito Santo — recorded 128 murders during eight days of uncontrolled street crime in February when police went on strike after budget cuts.”
“Cargo theft in Rio de Janeiro, whose greater metropolitan area has a population of 12m people, has increased sharply from 5,890 incidents in 2014 at the start of the economic downturn to a record 9,862 last year, says the local industry association Firjan. The state is on track to top a similar number this year, with food, beverages, electronic appliances and cigarettes among the preferred targets.”
“According to a 2017 report by the Inter-American Development Bank, crime and the efforts to combat it cost Brazil some $120bn a year, three times the toll on Mexico, which is ravaged by drug-cartel violence.“
Is this what happens when a society becomes too unequal? Politicians play their hand at their ability to regulate with intent to collect personal payoffs – graft becomes endemic – the people go on a corruption hunt – political infrastructure suffers – basic services decline – theft and looting become common place. I would imagine that the walls around the wealthy compounds are getting higher with more armed guards.
Okay, I’m prototyping here. Bottom line it’s finally gotten through my thick skull that assembling a weeks worth of content and putting it out there once-a-week is a LOT to consume all-at-once. So I’m going to try a new angle here. I’m not going to post every day – rather almost every day.
I will post when there is content I think is worthy of posting – also conditioned on when I come across it (sometimes I just don’t get around to it – day job you know).
Some days will be light and others heavy.
Some posts will include a summary like those found in the Featured or Briefs section and at other times there will only be links. Additionally I’ll sort the links now by categories and will post graphics within those categories as well.
Hopefully this makes the experience better for you and for me.
“Norway’s $910bn oil fund, which on average owns 1.3% of every listed company in the world, will start pressing companies to end such incentives [long-term incentive plans] and instead force chief executives to own substantial stakes in their companies for periods of at least five and preferably 10 years. It will also urge boards to name a ceiling for possible pay.”
China’s 2nd quarter gross domestic product came in at 6.7%, which is 10 basis points higher than forecast; however, the concern is where that growth has come from.
“Figures from the People’s Bank of China the same day showed that money supply growth was faster than expected, reaching levels last seen post 2008. New loans also rose by over $200bn, more than $50bn higher than economists’ estimates.”
Bottom line, “the reversion to state-led growth is unsustainable. Should China continue to shun reforms in favor of a quick fix, the short-term benefits of stabilized growth will be outweighed by the cost of persistent imbalances.”
The World Federation of Advertisers “estimates that between 10 and 30% of online advertising slots are never seen by consumers because of fraud, and forecasts that marketers could lose as much as $50bn a year by 2025 unless they take radical action. At that scale, the fraud would rank as one of the biggest sources of funds for criminal networks, even approaching the size of the market for some illegal drugs.”
“Global spending on online advertising has almost doubled in the past four years – reaching $159bn in 2015, according to research group eMarketer. This money underpins the internet economy and supports trillions of dollars of equity in media and technology.”
“Google, the biggest player in the online ad industry, generated revenues of $67bn from it last year.”
Bottom line, digital ad platforms and major buyers of online ads are emphatically building methods to track and prevent fraud and where they can and to the event that they can’t expect the federal government to step in.
Goes to show that just because a company is worth several billion dollars, doesn’t mean they pay back all their debts.
“While the overall retail property sector appears to be strengthening, a handful of loans for lower-quality shopping centers and malls financed at the height of the previous CRE cycle are coming due now and proving to be a thorn in the side of publicly traded REITs.”
“Simon Property Group and WP Glimcher both turned malls back over to the lenders this week, and Kimco Realty Corp. disclosed that it doesn’t expect one of its joint venture-owned malls will be able to refinance a loan set to come due this fall.”
“All three of the malls involved in the foreclosure actions were last financed in 2006 and securitized in mortgage backed bond conduits.”
As the saying goes, don’t hate the player, hate the game.
“In 1950, when the global economy was struggling to recover from World War II, oil-rich Venezuela was the world’s fourth-wealthiest country, boasting a per capita GDP of $7,424 exceeded only by the United States, Switzerland and New Zealand. Indeed, Venezuela’s per capita income was nearly four times that of Japan (at $1,873), nearly twice that of Germany ($4,281) and more than 12 times that of China ($614), according to NationMaster.com, an economics statistics site. By 2012, Venezuela’s per capita GDP ranked 68th in the world, according to the World Economic Forum. But it has continued to shrink since then, dropping 5.7% in 2015 and by a projected 7.1% rate in 2016, according to the country’s central bank. Inflation in Venezuela, the highest in the world, reached 159% in 2015 and is expected to grow to 204% this year, according to the International Monetary Fund.”
“Whether or not they choose to admit it the Abe government is on the verge of becoming the first government of a major developed economy to monetize its government debt on a permanent basis since 1945.”
“There are many ways of defining helicopter money, but the essential feature is that it involves an increase in the budget deficit which is financed by a permanent increase in the central bank’s monetary base, not by the issuance of government debt.”
“This is different from quantitative easing, since QE involves the ‘temporary’ purchase of government debt, which is subsequently sold back into the market, at least in theory. And QE does not necessarily need to involve any increase in the budget deficit…”
While “the direct financing of a government deficit by the Bank of Japan is illegal, under Article 5 of the Public Finance Act.” It looks like the government is coming up with a work-a-round.
One method proposed is the issuance of perpetual bonds “…which basically involves the central bank printing money and giving it to the government to spend as it chooses. There would be no buyers of this debt in the open market, but it could presumably sit on the BoJ balance sheet forever at face value.”
Thing is, that “there is no doubt that the BoJ is now monetizing much of the increase in government debt needed to fund ¥10 trillion fiscal stimulus planned by the government. Since the market fully expects the BoJ’s debt purchases to be permanent, it is helicopter money by any other name.”
Why do this when the labor market is at close to full employment? Basically the inflation expectations in Japan are REALLY low and the BoJ is seeking to reduce its vulnerability to “…any new deflationary shock, from China for example.”
The key point that helicopter money will confer is that debt sustainability (which is why the sales tax increases have been/are being implemented) is not the priority. Rather that Japan will live with whatever debt level it takes to achieve inflation.
“The key problem is that it might restore inflation far too well. It is very difficult to calibrate the amount of helicopter money that is needed to hit the inflation target.”
Expect the delicate dance to continue, which may fail to get Japan out of its deflationary rut.
While this is piece is a commentary on immigration and the Brexit, I think it does a good job of presenting the scale of the immigration challenge that the EU is facing. I will only highlight two specific items (the full commentary is a good read) for brevity. 1) Grantham’s stance on the markets “despite brutal and widespread asset overpricing, there are still no signs of an equity bubble about to break…” and 2) some of his thoughts on immigration to the EU.
“The truth about immigration to the EU, in my view, is bitter. As covered in earlier quarterlies, I believe Africa and parts of the Near East are beginning to fail as civilized states.”
“They are failing under the pressure of populations that have multiplied by 5 to 10 times since I was born; climate for growing food that is deteriorating at an accelerating rate; degraded soils; insufficient unpolluted water; bad governance; and lack of infrastructure. Country after country is tilting into rolling failure.”
“This is producing in these failing states increasing numbers of desperate people, mainly young men, willing to risk money and their lives to attempt an entry into the EU.”
“For the best example of the non-compute intractability of this problem, consider Nigeria. It had 21 million people when I was born and now has 187 million. In a recent poll, 40% of Nigerians (75 million) said they would like to emigrate, mostly to the UK (population of 64 million). Difficult. But the official UN estimate for Nigeria’s population in 2100 is over 800 million! (They still have a fertility rate of six children per woman). Without discussing the likelihood of ever reaching 800 million, I suspect you will understand the problem at hand. Impossible.”
“I wrote two years ago that this immigration pressure would stress Europe and that the first victim would be Western Europe’s liberal traditions. Well, this is happening in real time as they say, far faster than I expected. It will only get worse as hundreds of thousands of refugees becomes millions.”
Integration of Hong Kong with the Chinese mainland continues to be a delicate issue that is being stressed by a slowdown in the Chinese economy.
As Lily Lo, an economist at DBS, a Singaporean bank, put it “Hong Kong is really dependent on China and external trade. The Chinese economy is slowing down and this is a structural slowdown so we don’t think there will be a V-shaped recovery any time soon. There’s no quick fix.”
Further, as China has opened its economy more and more, Hong Kong is no longer the only or primary route to do business with China. “Its container port, which was the world’s busiest in the 2000s, has fallen to fifth place, overtaken by Shanghai, Shenzhen and Ningbo.”
“Mr. Tsang (John Tsang, the financial secretary of Hong Kong) and Li Ka-shing, the billionaire whose interests in Hong Kong stretch from ports to property and retail to telecoms, have both warned that the economic outlook is worse than that faced during the Sars epidemic in 2003, which killed 299 people and prompted the last sharp slowdown.”
“Chow Tai Fook, the biggest jeweler in the world by market capitalization, is seen as a bellwether for mainland demand for Hong Kong’s luxury goods. Its sales in Hong Kong and Macau fell on an annualized basis by 22% in the three months to the end of June.”
“Yu Kam-hung, managing director of investment properties at CBRE, an estate agent, predicts that prices could fall up to 10% over the next year, and they are already 10 to 15% off their peak of 18 months ago.”
Then of course it doesn’t help that “there is a deep-seated animosity to (Chinese) mainlanders in Hong Kong. So why would they want to go somewhere they are not welcome when there are so many other choices.” – Shaun Rein, China Market Research in Shanghai
It wasn’t long after the Brexit referendum vote that government bond yields in the safest markets dropped even further (see graphic on Sovereign credit ratings above). Problem is that the current structure in place within the European Central Bank (ECB) is reaching its limits.
Currently the ECB is buying €80bn a month in European member country debt to stimulate the overall European economy (aka Quantitative Easing or QE).
Well, “under current rules, the scale of purchases under QE match the size of a member state’s economy, meaning that Germany’s Bundesbank must buy around €10bn of government debt each month – more than any other central bank in the region.”
“But because of the recent bond market shifts, more than 50% of German bonds previously eligible for QE have now become too expensive for the Bundesbank to purchase, yielding less than the ECB’s self-imposed floor of minus 0.4%, according to data from Bank of America Merrill Lynch.”
So, now the ECB is essentially faced with three primary options (there are other options – see “Five ways to change the rules within the article).
Scrap the minus 0.4% floor. The “economists at Goldman Sachs calculate (this) would buy the ECB the most time, enabling the Bundesbank to keep buying for up to another 18 months.”
“The option, however, would expose the eurozone’s central banks to heavy losses, which they have until now avoided because the minus 0.4% floor mirrors the ECB’s deposit rate charged on banks’ reserves.”
“Scrap the rule that bond purchases match the size of a member states’ economy.”
“But such a shift would open the way to buying more bonds from the most indebted countries, and would so be the most controversial of the fixes. Nowhere would it attract more criticism in Germany, where the change would be viewed as a bailout by the back door for profligate member states.”
Don’t know if the EU or the world is ready for that.
As yields the world over drop “the effective yield on 7-to-10 year investment-grade corporates was 3.19%, according to Bank of America Merrill Lynch.” But relative to everything else, that’s really quite attractive.
“Indeed, in the universe of investment-grade debt, U.S. corporate bonds are close to the only game in town for investors looking for any yield. BofA Merrill Lynch credit strategist Hans Mikkelsen calculates that U.S. corporate bonds account for around 12% of all investment-grade debt outstanding world-wide yet they now represent about 33% of investment-grade yield income. Put otherwise, U.S. corporate bonds generate one out of every three dollars paid out by the entire universe of investment-grade debt.“
“Almost 87% of Japanese government bond yields are now below zero.”
“Unlike other major central banks, the BOJ is a buyer at almost any price and mainly purchases government bonds, which represent almost two-thirds of negative-yielding global sovereign debt globally.”
“Further buying will only push yields lower. Cutting back, while helpful in the short- to medium-term, means that the BOJ has to find other Japanese securities. But, unlike Europe or the U.S., asset-backed securities and corporate bonds are hardly an option because of their relatively small market sizes.”
For reference, “the BOJ now holds almost 30% of its government’s bonds.”
“Seven years into the economic expansion, the U.S. is showing signs it’s running short of job seekers qualified to fill openings. The shortfall, which has been evident for some time for highly skilled workers, is spreading to workers with less education as unemployment falls further.”
“We are now close to eliminating the slack that has weighed on the labor market since the recession.” – Janet Yellen, Federal Reserve Chair on June 6
“At 4.7% in May, the jobless rate is around the level that most Fed policymakers consider to be full employment.”
“A buying spree by central banks is reducing the availability of government debt for other buyers and intensifying the bidding wars that break out when investors get jittery, driving prices higher and yields lower.”
“Central banks themselves are having trouble finding all the bonds they need. The ECB, for example, can’t buy bonds with a yield lower than its deposit rate of minus -0.4%. As of July 1, 58% of German bonds eligible for ECB purchases traded below that level, according to Frederik Ducrozet, a senior economist at Pictet Wealth Management.”
“In Italy, 17% of banks’ loans are sour. That is nearly 10 times the level in the U.S., where, even at the worst of the 2008-09 financial crisis, it was only 5%. Among publicly traded banks in the eurozone, Italian lenders account for nearly half of total bad loans.”
“Although Italy has only one bank classified as globally significant under international banking regulations – UniCredit – some analysts say bank stresses worsened by Brexit could threaten Italy’s stability and, potentially, even that of the EU.”
According to Lorenzo Codogno, former director general at the Italian Treasury, “Brexit could lead to a full-blown banking crisis in Italy. The risk of a eurozone meltdown is clearly there if Brexit concerns are not immediately addressed.”
“The profitability of Italian banks has long been among the worst in Europe, weighed down by bloated staffs and too many branches, leaving the banks with little extra capital to cover loans that go bad. Today’s low interest rates have hit Italian banks especially hard because of their heavy focus on plain-vanilla lending activities, with relatively little in fee-generating activities such as asset management and investment banking.”
“…impaired loans at Italian banks now exceed €360 billion – quadruple the 2008 level – and they continue to rise.”
“Banks’ attempts to unload some of the bad loans have largely flopped, with the banks and potential investors far apart on valuations. Banks have written down nonperforming loans to about 44% of their face value, but investors believe the true value is closer to 20% or 25% – implying an additional €40 billion in write-downs.”
“One reason for the low valuations is the enormous difficulty in unwinding a bad loan in Italy. Italy’s sclerotic courts take eight years, on average, to clear insolvency procedures. A quarter of cases take 12 years.”
“There is an epidemic, and Italy is the patient that is sickest… if we don’t stop the epidemic, it will become everybody’s problem… The shock of Brexit has created a sense of urgency.” – Pierpaolo Baretta, an undersecretary at the Italian Economy Ministry
However, European officials are loath to let the Italians use the Brexit as an impetus to gain permission to bend the rules of the banking regime that were only just established at great pains. The Italians though are concerned “about the €187 billion of bank bonds in the hands of retail investors that would be wiped out by a bank resolution under the EU banking rules.”
“The world risks becoming ever more reliant on Middle Eastern oil as lower prices derail efforts by governments to curb demand, the west’s leading energy body has warned.”
“Middle Eastern producers, such as Saudi Arabia and Iraq, now have the biggest share of world oil markets since the Arab fuel embargo of the 1970s.”
“Demand for their crude has surged amid a collapse in oil prices over the past two years that has cut output from higher-cost producers such as the US, Canada and Brazil.”
“Middle Eastern producers now make up 34% of global output, pumping 31m barrels a day, according to IEA data. This is the highest proportion since 1975 when it hit 36%. In 1985, when North Sea production accelerated, their share fell to as little as 19%.”
Further, the adoption of more fuel efficient vehicles has slowed since the cost of gas has come down significantly. “In the US, more than two-and-a-half times as many sport utility vehicles were being bought compared with standard cars.” – Fatih Birol, executive director of the International Energy Agency.
“Even more concerning for policymakers is China, where more than four times as many SUVs were bought, suggesting the country’s rapidly growing car culture has adopted America’s taste for larger more fuel-hungry cars.”
“Lower oil prices are proving to be bad news for efficiency improvements.” – Fatih Birol
Bottom line, “‘the Middle East is reminding us that they are the largest source of low-cost oil,’ said Mr. Birol. He said the region was expected to meet three-quarters of demand growth over the next two decades.”
“Mr. Birol said policymakers needed to impose stricter fuel efficiency targets to reduce demand, arguing it was not feasible in a world market to completely sever reliance on Middle Eastern oil.”
“US oil production will increase, but it is still an oil importer and will be for some time.” – Birol
“So-called hedge fund reinsurers (HFRs) have failed to make a profit from providing reinsurance cover for more than four years, according to Standard & Poor’s.”
“S&P found that HFRs had performed considerably worse than traditional reinsurers, which have complained that the entry of new money into their sector has driven profitability down for all.”
“Conventional reinsurers tend to invest their income in conservative assets such as corporate bonds, since they do not know in advance how much they will need to pay out in claims.”
“In contrast, HFRs pursue what S&P described as ‘meaningfully risker’ investment strategies. Their assets are managed by their affiliated hedge funds. Allocations vary but include exposure to speculative-grade leveraged loans, private equity and short positions.”
“So-called combined ratio for the HFRs – claims paid and expenses incurred as a proportion of premium income 0 has been above 100 in every year since 2012, meaning a loss from underwriting.”
“Last year the ratio came in at 110.2%, compared with a profitmaking 88.6% for their conventional reinsurance peers.”
“S&P said the HFRs’ investment performance had also been ‘rough’. Overall net investment income dropped 63% from 2014 to $247m last year.”
Japanese banks wary of property risks. Negative-yielding sovereign debt jumps to $11.7tn.
This week all the media outlets were blanketed with coverage on the Brexit and of course the synopsis varied from catastrophe (a lot of money was lost in the equity markets around the world immediately – which have already made up a lot of lost ground), to concern over the survival of the European Union, to a general ‘meh.’ Remember, the world moves on. Importantly, Britain is still part of the EU. No one has triggered Article 50 of the Lisbon Treaty yet and even when Britain does trigger the article, there is a two-year exit process with the EU. As such, some even think that Britain may not eventually leave. So for now as the Brits like to say, keep calm and carry on.
“Moody’s Investors Service is predicting that China’s property markets are facing a double-whammy of growing margin pressures for developers and tapering growth in home sales nationwide.”
“The rapid growth in land costs will raise the developers’ capital requirements and will also likely add margin pressure in the next 12-24 months. Furthermore, developers that acquired land with high unit costs in major cities will face increased business risks, given our expectation that price growth in these cities will moderate.” – Dylan Yeo, Moody’s analyst
“The report from Moody’s follows a note from S&P Global Ratings last week reiterating expectations for growing bond defaults onshore in China, with those for property developers forecast to have the biggest potential impact.”
“Between 2005 and 2015 the world’s cities swelled by about 750m people, according to the UN. More than four-fifths of that growth was in Africa and Asia; specifically, on the fringes of African and Asian cities. With few exceptions, cities are growing faster in size than in population. Lagos, the capital of Nigeria, is typical: it doubled in population between 1990 and 2010 but tripled in area. In short, almost all urban growth is sprawl.”
“London took two millennia to grow from fewer than 30,000 people to almost 10m; Shenzhen in China managed that within three decades. And most African and Asian cities are growing more chaotically.”
“Like it or not, this is how the great cities of the 21st century are taking shape.”
“Shlomo Angel of New York University has studied seven African cities in detail: Accra, Addis Ababa, Arusha, Ibadan, Johannesburg, Lagos, and Luanda. He calculates that only 16% of the land in new residential areas developed since 1990 has been set aside for roads – about half as much as planners think necessary. And 44% of those roads are less than four meters wide.”
“Inflation-adjusted rents have risen by 64% since 1960, but real household incomes only increased by 18% during that same time period, according to an analysis of U.S. Census data released by Apartment List, a rental listing website.”
“Renters fared the worst during the decade between 2000 and 2010, when inflation-adjusted household incomes fell by 9%, while rents rose by 18%, according to Apartment List.”
In regard to inflation “…housing still largely relies on U.S. labor and materials (and zoning restrictions), making it one of the few essentials that haven’t become cheaper with globalization.”
“The International Monetary Fund has warned that ultra-low interest rates pose a threat to the profitability of Germany’s €13tn financial sector, as it steps up its call for the country’s banks and insurance groups to restructure.”
“The IMF has supported the ECB’s aggressive monetary easing and indicated that the onus was on German banks and their regulators and supervisors to reform.”
“Given its high share of savings and co-operative banks – whose business revolves around taking deposits from and making loans to local communities – the German banking system is highly dependent on interest rates.”
“A study by BaFin, the German financial watchdog, and the Bundesbank last year found that Germany’s 1,500 small and midsized banks expected profits to fall by an aggregate of 25% by 2019, mainly owing to the collapse in net interest income. The study projected that if rates fell a further 100 basis points, lenders’ profits would plunge at least 60% by the same date.”
“Japanese banks are reining in their exposure to the property market on concern the central bank’s negative-rate policy is fueling overheating.”
“We’re watching the market carefully because we get a strong sense that the market is being pushed up mainly by a lot of lending.” – Michiya Fujii, head of the real estate finance department, Tokyo Star Bank, Ltd.
“Lending to the real estate sector rose to a record high in March, exceeding levels during Japan’s asset bubble in the late-1980s, according to Bank of Japan data.”
When you look at the options for income investors you can understand why. “While the average expected yield for central Tokyo office property fell to 3.7% in the first quarter, its lowest since at least mid-2007, that is still 82 times the 0.045% yield an investor can earn from buying 20-year government debt. Ten-year yields have dropped 10 basis points this month to minus 0.22%.”
“Considering the downside risks, this is not a time when we can aggressively lend. What’s important is, when the time comes and the market turns, how much durability we’ve built into the portfolio.” – Katsumi Taniguchi, head of the planning team of the real estate finance department at Sumitomo Mitsui Trust
Additionally, while rates are low real estate investment trusts and large developers are taking advantage of the opportunity to lower their borrowing costs. “Nippon Building Fund Inc., Japan’s largest REIT, sold 30-year debt this month at a coupon of 1%, while the largest developer Mitsubishi Estate Co. issued 40-year bonds at 0.789%.”
“The universe of negative-yielding government debt has increased by more than $1tn in the last month to reach a high of almost $12tn in one of the most tangible results of Britain’s decision to leave the EU.”
“Low sovereign bond yields reflect gloomy economic outlooks and expectations of central bank stimulus. In turn a record $11.7tn of global sovereign debt has now entered sub-zero territory – an increase of $1.3tn since the end of May, according to data released by Fitch Ratings.”
“You have to look at the response by central banks after the Brexit shock. You’re seeing a ubiquitous tilt toward easing among G4 central banks (Federal Reserve, European Central Bank, Bank of Japan, and the Bank of England).” – Ben Mandel, a global strategist at JPMorgan Chase
Because of this, “futures markets suggest investors saw a roughly 75% chance that the Federal Reserve will not raise interest rates over the next 12 months.”