How are institutional investors reacting to the rate cut?

Less than two weeks ago, the U.S. Federal Reserve announced its first rate cut since 2008. This decision surprised few given the uncertainty in the economy and global trade tensions. What did perhaps surprise many was the effect that the Fed’s decision had on the bond markets. Since the Fed’s announcement on July 31, the 10-year treasury yield has dropped from 2.02 to 1.73. But what does this mean for investors’ portfolios?

According to Economist John Mauldin, “the longer an inverted yield curve persists and the deeper it gets, the higher the probability of recession within the next 9–15 months.” Mauldin predicts a flight of capital toward high-yield junk bonds. Such assets may be able to provide yield, but at what cost?

The safest yield-producing investment during such tumultuous times is multifamily real estate. We have been specializing in multifamily real estate for 40 years because during down markets, it is the most resilient asset class (see Figure 1 below from CBRE Research).

We are already witnessing some of the most high profile investment firms, such as Iconiq Capital, buying up apartment buildings throughout major US cities (Source: WSJ). The timing of these investments demonstrates where the smart money is headed to prepare for our next economic cycle, and that is multifamily real estate.