Paul Elsen, director of hedging and capital markets at Chatham Financial, participated in a video interview during Nareit’s REITwise: 2024 Law, Accounting & Finance Conference held March 19-21 in Hollywood, Fla. Elsen emphasized the cautious stance of the Federal Reserve regarding potential rate cuts amidst inflation concerns.
"I think the Fed would like to move, but they're certainly not going to do it before they're confident that we're going to hit that 2% level," he noted.
Discussing long-term rates, Elsen highlighted the impact of supply and demand dynamics, with the Treasury issuing record levels of debt. He noted that he "wouldn't be surprised if we continue to see yields rise," underscoring the rise in yields due to a gap in demand as the Fed reduces its role as a buyer of treasuries.
Regarding hedging strategies, Elsen pointed out the advantage of hedging further out on the yield curve in a downward sloping environment.
"Interestingly, there's actually a benefit to hedging out further—hedging longer, rather than shorter,” he said.
In a market characterized by uncertainty, Elsen advised REITs to maintain flexibility in financing plans and to stay in close communication with derivatives and hedge accounting advisors.
"It's just more important than ever to stay in close contact with your derivatives advisor and your hedge accounting advisor," he said, suggesting that would help ultimately in avoiding pitfalls.