All Forum Posts by: Ronald Rohde

The 10-year is pessimistic about the next few years. There is no way sellers are selling at caps that high unless there is a special circumstance, so buyers just aren't buying. When I see deals that do pencil for an investor, the LTV is 60% or less (I deal with mostly retail and industrial). The CRE market is tough right now.

"Inflation expectations" is a purely rational and logical way to look at it, but let's consider that bond market buyers/sellers aren't 100% comprised of Vulcans, and that there are highly emotional and irrational individuals among them, as well. We actually CAN'T explain what we are seeing if we are operating on the "purely rational actor" hypothesis (as you implicitly observe), we MUST include highly irrational and emotional individuals to explain what we are seeing.

- Investor uncertainty. If I, as a bond investor, am uncertain about what the future will bring, I might just sit on the sidelines and not invest. In order to entice me to invest in spite of my hesitation, a better ROI must be offered to me. There's nothing that prompts inaction like uncertainty (in fact, hinting at demanding a stable 11 cap, one might argue, is a form of effective inaction, since we know how hard that is to find).

- Substitute goods. If I'm mentally and emotionally all-in on the incoming administration and think the economy is going to be amazing, best economy with the biggest hands ever, etc etc, then I can do better than gov't bonds, given the emotions I am experiencing. Maybe I'm no longer a low risk bond investor, maybe I'm parking my money in $VOO instead, CRE REITs, or perhaps higher risk higher return bonds.

Again, OP, if we're operating on the assumption that everything is about rationality and logic, then there is no explanation for what we are observing. The only way to explain it is to throw in emotion and irrationality. NOW it makes sense.