By way of background, aircraft lenders adapt their cost-of-funds to a variety of metrics, but one we keep our eye on is the 5-year Treasury. We watch this rate more closely it helps us see what’s coming.
In early November 2010, the 5-year Treasury hit a low-point (roughly 1.17% on November 1st). At that point, our aircraft lending rates hit a low-point too, which overlaid well with year-end closings. However, the 5-year Treasury rate increased to 2.02% on January 3, 2011, and has since continued to climb 1.16% since the low-point – hitting 2.33% as of yesterday (February 9th).
Below is an article link that explains a little more of the background, and some of the factors leading to these increases (courtesy of the Wall Street Journal/ Marketwatch): Article: Underlying Rates
Our rates have not changed in the past 90 days, but the underlying advances would lead us to think that rates are close to rising on the aircraft lending front. It would be a great time for clients to lock-in pre-approvals at today’s lower rates, which would give them 30 days to shop for an aircraft (and rate protection during that period).
As a final note – the Federal Reserve announced in October/ November that it would buy short-term debt over the following 6 months, in an effort to continue to stimulate the economy through lower interest rates. In this time, 5-year treasuries have nearly doubled, in part due to the healing economy. Consider this – are these underlying advances being held-back by the Fed action? If so, could we have a situation where rates would “pop” once the buyback ceases sometime in April/ May? Either way, the rate “bottom” seems to be here today.