Global Research and Consulting Econometric Advisors CBRE Econometric Advisors Client Conference 2012 October 2, 2012 Session I | U.S. Capital Market Outlook.

Slides:

Advertisements

Similar presentations

The Yield Curve zYield Curve (Term Structure of Interest Rates): A plot of the interest rates of Treasury Bills and Treasury Bonds versus their maturities.

Advertisements

Market Segmentation Theory FNCE 4070 Financial Markets and Institutions.

Term Structure of Interest Rates

Chapter 1 The Nature of Real Estate and Real Estate Markets Real Estate FIN 331.

Economic Outlook William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Multi-Chamber Economic Outlook Luncheon Westmont,

Interest Rates on Debt Securities n Rates in general are influenced by n 1) Actions of the Federal Reserve Board n 2) Federal fiscal policy.

4.2 You have just won $10 million, $1 every year for the next 10 years. Discuss. 4.6 What is the yield to maturity of a $1,000 face value discount bond.

Risk and term structure of interest rates

GBUS502 Vicentiu Covrig 1 Interest rates (Chapter 6)

Chapter 6 The Risk and Term Structure of Interest Rates

6-1 CHAPTER 6 Interest Rates Determinants of interest rates The term structure and yield curves.

Dr. David P. Echevarria All Rights Reserved 1 CHAPTER 3 STRUCTURE OF INTEREST RATES.

The Cost of Money (Interest Rates)

Risk Structure of Long-Term Bonds in the United States

Interest Rates Fin 200.

How Do The Risk and Term Structure Affect Interest Rates

Bond Pricing Portfolio Management. Styles of Bond Funds Bond funds are usually divided along the dimension of the two major risks that bond holders face.

Interest Rate Differentials Tax-free rates typically lower than taxable rates –People care about after-tax return –Tax-free bonds  “tax expenditure” Government.

GLOBAL RESEARCH AND CONSULTING THE ECONOMY AND REAL ESTATE GARY BARAGONA DIRECTOR, RESEARCH & ANALYSIS JANUARY 2014.

Global Research and Consulting Econometric Advisors CBRE Econometric Advisors Client Conference 2012 October 2, 2012 Session 1 | U.S. Property Market Outlook.

Copyright © 2009 Pearson Prentice Hall. All rights reserved. 5-1 How do risk and term structure affect interest rates? Yesterday, we examined interest.

The risk and term structure of interest rates

Chapter Two Determination of Interest Rates.

Global Research and Consulting Econometric Advisors CBRE Econometric Advisors Client Conference 2012 October 2, 2012 Session 5 | Market Segments What Generates.

The Risk and Term Structure of Interest Rates

Risk: The Volatility of Returns The uncertainty of an investment. The actual cash flows that we receive from a stock or bond investment may be different.

Economic Outlook William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Chicago Association of Spring Manufacturers Rosemont,

Global Research and Consulting Econometric Advisors CBRE Econometric Advisors Client Conference 2012 October 2, 2012 Global Research and Consulting Econometric.

economic indicator  A statistic about the economy.  Allows analysis of economic performance and predictions of future performance.  Include various.

Global Research and Consulting Econometric Advisors CBRE Econometric Advisors Client Conference 2012 October 2, 2012 Global Research and Consulting Econometric.

Learning Goals Discuss the components that influence the risk-free interest rate at a given point in time. Explain why the risk-free interest rate changes.

4-1 CHAPTER 4 The Financial Environment: Markets, Institutions, and Interest Rates Financial markets Types of financial institutions Determinants of interest.

© 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter.

1. 2 Learning Outcomes Chapter 5 Describe the cost of money and factors that affect the cost of money. Describe how interest rates are determined. Describe.

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7 The Risk and Term Structure of Interest Rates.

CHAPTER 3 Structure of Interest Rates © 2003 South-Western/Thomson Learning.

6-1 CHAPTER 6 Interest Rates Determinants of interest rates The term structure and yield curves Investing overseas.

Chapter 6: The Economics of Interest-Rate Spreads and Yield Curves Chapter Objectives Define the risk structure of interest rates and explain its importance.

STRUCTURE OF INTEREST RATES 1. The yields on debt securities are affected: Credit (default) risk Liquidity Tax status Term to maturity 2.

Law, finance, and growth. NES FF 2005/06 2 Questions How to measure country’s financial development? How to measure country’s financial development? How.

The Risk and Term Structure of Interest Rates

Intro to Financial Management Financial Markets and Interest Rates.

1 Credit and Fixed Income 30 January 2010 Philip Barleggs.

Management of Asset Risk - I CM - 18 Risk & Capital Management Seminar - 9 July 2002 I N S U R A N C E A S S E T M A N A G E M E N T.

Chapter 11 Cost of Capital Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. CHAPTER 18 The Debt Markets.

Chapter 5 The Cost of Money (Interest Rates) 1. Learning Outcomes Chapter 5  Describe the cost of money and factors that affect the cost of money. 

February 2016 Outlook for Financial Markets Jack Ablin, CFA Chief Investment Officer (312) What to do Now? – Navigating Wall Street Volatility.

Chapter Five The Structure of Interest Rates. Copyright © Houghton Mifflin Company. All rights reserved.5 | 2 Different Types of Debt Securities Personal.

2015 Investment Outlook Yuntaek Pae, PhD, CFA Associate Professor of Finance, Lewis University.

Relationship among rates on bonds with different characteristics but same maturity. What causes interest rates on bonds with the same maturities to increase?

Copyright © 2012 Pearson Prentice Hall. All rights reserved. CHAPTER 5 How Do Risk and Term Structure Affect Interest Rates?

From Turmoil to Recovery, What’s Next? Jean McGowan, CFA February 16, 2010.

The Risk and Term Structure of Interest Rates

Chapter 6 The Risk and Term Structure of Interest Rates

The Risk and Term Structure of Interest Rates

Chapter 6 The Risk and Term Structure of Interest Rates

Chapter 6 The Risk and Term Structure of Interest Rates

Factors Affecting Choice of Investment Securities (continued)

Cost of Money Money can be obtained from debts or equity both of which has a cost Cost of debt = interest Cost of equity = dividends What is cost for.

Chapter 7 Interest Rates.

STRUCTURE OF INTEREST RATES

The Risk and Term Structure of Interest Rates

KRUGMAN’S Economics for AP® S E C O N D E D I T I O N.

The Risk and Term Structure of Interest Rates

The Risk and Term Structure of Interest Rates

Intro to Financial Management

Financial markets Types of financial institutions

4 Interest Rate Fundamentals Introduction to Finance Chapter

Are Big Changes Coming to the Fed? David Beckworth

Presentation transcript:

Global Research and Consulting Econometric Advisors CBRE Econometric Advisors Client Conference 2012 October 2, 2012 Session I | U.S. Capital Market Outlook Presented by: William Wheaton, Senior Consultant Serguei Chervachidze, Capital Markets Economist

CBRE | Page 2 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Cap Rates: How Do We Get There? Source: CBRE EA Investment Outlook Q2 2012, NCREIF.

CBRE | Page 3 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Rental Drivers of Cap Rates Source: CBRE EA Investment Outlook, Q

CBRE | Page 4 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Source: CBRE Econometric Advisors, Federal Reserve. Outlook for Interest Rates

CBRE | Page 5 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Source: CBRE Econometric Advisors, Federal Reserve. Risk Premium: Investor Perception of Risk

CBRE | Page 6 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Debt Availability: Individual Components Source: CBRE Econometric Advisors, Federal Reserve.

CBRE | Page 7 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Source: CBRE Econometric Advisors, Federal Reserve. Debt Availability (Liquidity): Sum of Components

CBRE | Page 8 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Previous Model: Cap Rates Too High Source: CBRE Econometric Advisors, NCREIF. Preference for Collateralized RE Investments?

CBRE | Page 9 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Previous Model: Cap Rates Too High Source: CBRE Econometric Advisors, NCREIF. Preference for Collateralized RE Investments?

CBRE | Page 10 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Not Just One Rate: Term Structure Matters Source: CBRE Econometric Advisors, Federal Reserve.

CBRE | Page 11 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Why Term Structure Matters  Expectations about the future path of economy  A better representation of the true cost of capital in the aggregate vs. a single rate: Different Investors have different term horizons Investors can optimize across terms to minimize cost of capital  A better indicator of aggregate capital availability in the economy  Contemporaneous movement?  All of the above?

CBRE | Page 12 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Expanded Model: Term Structure Affects Pricing Source: CBRE Econometric Advisors, NCREIF.

CBRE | Page 13 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Term Structure Effect: How Much? Source: CBRE Econometric Advisors, Federal Reserve.

CBRE | Page 14 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 … A Major Effect on Pricing Source: CBRE Econometric Advisors.

CBRE | Page 15 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Term Structure and Pricing: Findings  Controlling for the overall interest rate level, widening the term spread (steeper the slope of yield curve) boosts asset prices  If term structure spreads had stayed at 2007 levels, valued would have dropped significantly more  Monetary policy has a plethora of complex effects (Operation Twist, QE, etc): more complex than usually perceived  Helps explain variation in cap rate spreads over 10-year Treasury

CBRE | Page 16 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Term Structure: Outlook Source: CBRE Econometric Advisors, Federal Reserve.

CBRE | Page 17 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Expanded Model: Cap Rates with Term Structure Effects Source: CBRE EA Investment Outlook Q2 2012, NCREIF.

CBRE | Page 18 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Relative Pricing: Cap Rate Spreads Source: CBRE EA Investment Outlook Q2 2012, NCREIF.