Financing spreads increased dramatically in the second half of last year and remain volatile. Cautious lenders will closely monitor economic and retail market trends, causing spreads to fluctuate. Conduit spreads remain at their highest levels of 350-500 BPS over the 10 year if they will even quote at all.

The yield on the 10-year Treasury is down more than 150 basis points since mid-2007, helping to offset the impact of wider spreads. Investors’ flight to safety is expected to keep the 10-year Treasury yield in the high-3 percent to mid-4percent range this year. Both short term and long term bonds are becoming extremely volatile given the lack of confidence in the government’s credit.

Financing remains the toughest part of 2008 for most investors. Pricing will eventually adjust this year considering the amount of capital waiting on the sidelines waiting for the market to tip in their favor. This in conjunction with a slowing economy, declining consumer confidence, a looming recession, negative job growth all makes for a market that is completely uncertain.

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