Canadian Geopolitical Uncertainties Remain Elevated & Trade Wars Progressed: CBRE Report
CBRE Canada’s recent Q2 2019 Canadian Cap Rates & Investment Insights report states that trade and geopolitical uncertainties remain elevated, and reality led to lower bond yields as trade wars progressed.
According to the report, the Federal Reserve and the Bank of Canada have “turned dovish” on interest rates, which could possibly induce rate cuts later this year.
Despite soaring stock markets, investors are focusing on defense. CBRE Canada suggests that this news works in favour for bond proxies such as real estate.
“While there was a slight upward movement in cap rates for regional malls, power centres and suburban office assets, the increases were felt primarily within the secondary asset quality tiers within these sectors,” said CBRE Canada.
The report also reveals Goldman Sachs year-end forecast revision on 10-year Treasury yields from 2.80 per cent to 1.75 per cent.
CBRE Canada’s report says yields decreasing by 105 bps is a clear signal that bond markets don’t believe the US-China trade tensions are a small matter.
“This trend now appears to be spreading to other trade-oriented nations like South Korea, Japan and other supply chain economies,” said CBRE Canada.
U.S. equity markets continue to prosper while the BOC looks to maintain the status quo. CBRE Canada further states that at the end of Q2, eight basis points separated five and 10-year Canada bond yields.
With bond yields in such a low realm, lenders have so far also elected to maintain the status quo, according to the report.