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Economy, the Fed, and Rates…

Economic Data

• Inflation pressures are mutating, not vanishing. April CPI slowed to 2.3% y/y, with PPI at 2.4%, but both showed “modest tariff pass-through” on goods largely offset by outright deflation in services. Bloomberg Economics calculates that the same goods/services split should cap core-PCE around 3% by year-end, below the 3.3% consensus, even after accounting for the tariff shock.
• Consumers are blinking. April retail sales were notably weak, rising just 0.1% after a 1.7% surge in March. The slowdown is attributed to consumers pulling back in categories exposed to China-related tariffs, indicating sensitivity to price increases. Spending on food services, however, remained solid, limiting downside risk to overall consumption. 
• Input-cost squeeze at the factory gate. Producer prices fell -0.5 % m/m, the biggest drop in five years, as margins shrank; firms are absorbing tariff costs rather than passing them through – for now.

Federal Reserve Policy

• Fed Chair Jerome Powell pivots back to an inflation-first doctrine. In back-to-back speeches, Powell warned of “more frequent and potentially persistent supply shocks.” He said the Fed will rewrite the 2020 framework, reconsidering the “shortfalls in employment” language and shelving “average inflation targeting.” Translation: the bar for pre-emptive rate cuts just got higher.
• Rate cut timeline delayed. Market expectations now target September for the resumption of rate cuts, significantly later than early-year forecasts. The Atlanta Fed’s Bostic maintains an outlook for just one rate reduction in 2025, citing persistent uncertainty unlikely to resolve quickly.

Treasury Yields & Credit

• Moody’s strips U.S. of triple-A rating. Moody’s lowered the U.S. credit score to Aa1 from Aaa on Friday, joining Fitch and S&P in grading the world’s biggest economy below the top, triple-A position.
• Long bonds cross 5% - briefly. The Moody’s downgrade, while largely symbolic given the dollar’s reserve status and the depth of U.S. financial markets, has contributed to upward pressure on Treasury yields. The 10-year yield climbed to around 4.5%, and the 30-year briefly crossed 5%-levels that historically begin to weigh on equities and risk appetite. The 30-year yield is up over 40 bps since early April while the 10-year yield is up over 30 bps.
• Foreign investors reducing Treasury exposure. Central banks and sovereign wealth funds now hold just 36% of U.S. debt, near the bottom of the historical range since 2012. Additional selling due to the Moody’s downgrade looks unlikely; many investors long ago rewrote mandates to allow sub-AAA Treasuries, and PGIM argues the immediate market impact will be “minimal.”

Impact on CRE Finance

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Senate Advances Stablecoin Bill 

May 20, 2025

The U.S. Senate invoked cloture on the GENIUS Act yesterday, a bipartisan bill designed to establish a regulatory framework for payment stablecoins. The bill and cryptocurrency legislation are major priorities for House and Senate financial services leadership. 

Why it matters: A stablecoin is a type of cryptocurrency designed to maintain a stable value by being pegged to a reserve asset, often a currency like the U.S. dollar, euro, or a commodity like gold. Common examples include USDT (Tether) and USDC (USD Coin), both of which are tied to the value of the U.S. dollar. 

• Stablecoins can offer price stability compared to traditional cryptocurrencies, which tend to be more volatile. Advocates for stablecoin regulation see the effort as an important step to digitize the dollar, ensuring it remains competitive in global trade, finance, and as a store of value in a world increasingly embracing digital assets.
• Proponents of the legislation say the GENIUS Act could bolster the U.S. dollar's position in the digital economy. It would do so by providing clarity and stability to the rapidly growing stablecoin market, which has seen its market capitalization surge to $246 billion. 
• The legislation is also expected to influence the broader regulatory landscape for digital assets in the United States; however, a separate effort known as market structure on crypto legislation is expected.

Go deeper: If enacted, the bill would enact the following measures: 

• Stablecoin issuers must be licensed: Entities that wish to issue payment stablecoins would need to obtain a license from a federal or state regulator.
• 1:1 Reserve Requirement: All stablecoins must be backed by reserve assets at a one-to-one ratio, ensuring that each token is backed by U.S. dollars or high-quality liquid assets. It is important to note that secure and liquid assets such as cash or Treasury bills can be held as reserves.
• Redemption Rights: Consumers must be able to redeem their stablecoins for U.S. dollars at par value, preserving trust and liquidity.
• Audit and Transparency: Issuers would be subject to regular audits, public disclosure of reserve composition, and strict risk management protocols.
• Anti-Money Laundering (AML) Compliance: Issuers must comply with AML, Know Your Customer (KYC), and other financial integrity obligations.
• Prohibits Issuance by Non-Financial Entities: Large technology companies and commercial firms would be barred from issuing stablecoins to prevent systemic risk or monopolistic digital currencies.

What they’re saying: The Senate voted to invoke cloture—a 60-vote threshold—with a large bipartisan margin (66-32) on Monday. This is a stark change from two weeks ago, when the bill failed to receive sufficient votes to be considered by the full Senate.

• Despite initial bipartisan support, Democrats had concerns over potential conflicts of interest involving President Donald Trump's family's cryptocurrency business ventures and the possibility of Big Tech companies issuing their own stablecoins.
• Other Democrats on the committee have changed their perspective on the proposed legislation, touting “major victories” in stablecoin negotiations since the initial bill failed two weeks ago. A revised draft has been introduced, including stronger anti-money laundering, national security, and consumer protection provisions.
• Senator Mark Warner (D-VA), a key negotiator for the Democrats, was quoted as saying he was “hoping for a deal,” noting that there are “literally just a couple of language issues” to iron out. Warner and 15 other Democrats voted for the bill.

The bottom line: The cloture vote was the key legislative hurdle for the bill, and Senate passage is likely assured later this week. The legislation still needs to go through House consideration before making it to the president’s desk. Proponents believe the bill would be a milestone for an industry that wants to encourage broader use and acceptance of cryptocurrency.

What's next: CREFC will continue to monitor this proposed legislation and any impact it may have on the CRE finance market.

Please contact James Montfort (Jmontfort@crefc.org) with any questions. 

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CRE Securitized Debt Update

1. ALA 2025-OANA, a $2.4 billion SASB backed by a floating-rate, five-year loan (at full extension) for a joint venture led by Brookfield to refinance the 2.7 million-sf Ala Moana Center in Honolulu.
2. MF1 2025-FL19, a $1.3 billion CRE CLO sponsored by MF1. The managed transaction is comprised of four whole loans and 21 loan participations secured by 82 multifamily properties in 18 states.
3. BSPDF 2025-FL2, an $894.4 million CRE CLO sponsored by Benefit Street Partners Real Estate Opportunistic Debt Fund. The managed transaction is comprised of three whole loans and 35 loan participations secured by 62 properties in 15 states. The top three property types are multifamily (61.3%), hotel (19.3%), and industrial (15%).
4. BX 2025-LIFE, an $869.3 million SASB backed by a fixed-rate, 10-year loan for Blackstone’s BioMed Realty unit on eight life-sciences buildings in the Boston area.
5. ARCLO 2025-BTR1, an $801.9 million CRE CLO sponsored by Arbor Realty SR, Inc. The managed transaction is comprised of 21 loans secured by 21 multifamily properties.
6. BSTN 2025-1C, a $650 million SASB backed by a fixed-rate, seven-year loan for Carr Properties and National Real Estate Advisors to refinance the recently constructed One Congress office tower in downtown Boston.
7. WFCM 2025-5C4, a $581.6 million conduit backed by 32 five-year loans secured by 82 properties across 16 states from Wells, Citi, LMF, Argentic, and JPMorgan.

By the numbers: Year-to-date private-label CMBS and CRE CLO issuance totals $61 billion, representing a 100% increase from the $30.5 billion recorded for same-period 2024. 

Spreads Rally

• Conduit AAA and A-S spreads tightened by 7 bps and 5 bps to +85 and +130, respectively. YTD, spreads are wider by 10 bps (AAA) and 25 bps (A-S).
• Conduit AA and A spreads were tighter by 35 bps and 40 bps to +170 and +225. YTD, they are wider by 35 bps and 60 bps, respectively.
• Conduit BBB- spreads were tighter by 40 bps at +575. YTD, they are wider by 150 bps.
• SASB AAA spreads were tighter by 10 - 17 bps to a range of +115 to +140, depending on property type. YTD, they are wider by 8 - 23 bps. 
• CRE CLO AAA were tighter by 15 bps to +150, while BBB- spreads were unchanged at +425.

Agency CMBS

• Agency issuance totaled $3.8 billion last week, comprising $2.4 billion of Fannie DUS, $993.8 million of Freddie Multi-PC and SBL transactions, and $396.2 million of Ginnie Mae transactions.
• Agency issuance for the year totaled $50.9 billion, 38% higher than the $37 billion for the same period last year.

Contact Raj Aidasani (raidasani@crefc.org) with any questions.

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