U.S. Treasury Yield Curve Nominal and Real Q4 2016 vs. Q3 2016
At the end of the 4th quarter of 2016, U.S. Treasury yields, on a nominal basis, were notably higher at every maturity, with increases for 5 years or longer of 50 or so basis points. On a real basis, rates we also up across the board, albeit slightly less for maturities of 5 years or more as inflation expectations have ticked up every so slightly.
The interest rate environment has the ability to affect commercial property economics in a number of different ways (see this, this, and this). Borrowing costs are, of course, affected directly, as higher interest rates increase the cost of borrowing and thus negatively affecting demand. Cap rates tend move over time with interest rates, but not in lockstep, with considered analyses generally concluding that capitalization rates on average move in the same direction as 10-year rates, but only about a third as much, and again not in lockstep. Interest rates also affect the economy, which in turn affects vacancy and rental rates. In summary, the interest rate environment is very important to commercial property investment.
View more yield curve quarterly snapshots.