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No Correction in Real Estate Investment Trusts


Money continues to pile into physical real estate.

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Shares of Real Estate Investment Trusts (REITs) remain oblivious to the mess in the Middle East and Ukraine, and all the other anxieties surrounding equities. 

The iShares US Real Estate ETF (NYSEARCA:IYR) is regularly pushed around by the yield on the 10-year Treasury, so with rates heading lower, it is enjoying another push toward post-crisis highs around $76.50.

The correlation between interest rates and the IYR will no doubt continue, but the real driver behind the REITs is, and will continue to be, the behavior of CMBS spreads. 

The latter have been tightening relentlessly notwithstanding rising or falling Treasury rates. In turn, tight CMBS are driving an avalanche of money into physical commercial real estate with the main problem being a scarcity of quality supply, particularly in prime markets. 

With the obligatory ups and downs, the dynamic described above will continue to support this group.

Twitter: @FZucchi

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Position in IYR.
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