In May 2013, then Federal Reserve Chairman Ben Bernanke hinted to Congress that the Fed would consider tapering its $70 billion monthly bond-buying program. The markets reacted swiftly and violently to the news. Investors immediately began pulling money from the bond markets. Bond yield pushed significantly higher as money outflows scared investors. The event became known as the “taper tantrum.” #-ad_banner-#The reaction in the U.S. REIT market was just as swift. The total returns of the FTSE NAREIT All REIT Index fell sharply, ending the month down 6.6%. The index lost another 8.5% over the next six months. The volatility… Read More
In May 2013, then Federal Reserve Chairman Ben Bernanke hinted to Congress that the Fed would consider tapering its $70 billion monthly bond-buying program. The markets reacted swiftly and violently to the news. Investors immediately began pulling money from the bond markets. Bond yield pushed significantly higher as money outflows scared investors. The event became known as the “taper tantrum.” #-ad_banner-#The reaction in the U.S. REIT market was just as swift. The total returns of the FTSE NAREIT All REIT Index fell sharply, ending the month down 6.6%. The index lost another 8.5% over the next six months. The volatility in the REIT sector illustrated the conventional wisdom among investors about REIT prices and interest rates. REIT prices usually decline when interest rates rise. This is because higher interest rates reduce the present value of future cash flows. As such, asset prices must come down — all other things being equal. And that’s exactly what happened. But that doesn’t mean some economic law is in place here. Nor does it mean that all REITs should experience declines equally. Residential and office REITs can actually rise with interest rates, thanks to the higher demand and rising rents that come with economic… Read More