The 10-year Treasury yield is more important in much of CRE than whatever level of federal funds rate that the Federal Reserve sets. That’s why the direction of the benchmark's price and yield, which move inversely, and other federal bonds will be making many investors, property owners, and developers nervous.
At the end of Tuesday, the yield on the 10-year closed at 4.679%. The number has been bouncing around for months, but generally trending upward for a while. The 30-year, which closed at 4.836%, hit the highest yield seen in about 14 months. Returns on both have risen 40 basis points in the last month.
In addition, the Treasury Department is selling $39 billion of 10-year bonds and $22 billion of the 30-year. That will add more supply, likely driving prices down further and yields upwards. But there are other factors at work. Tariffs would likely increase inflation and bond investors then look for higher yields for the future. An auction of $58 billion in 3-year notes on Monday resulted in poor demand, which also reduces prices and increases yields, reducing expectations for later in the week.
Additionally, Trump’s promises of tax cuts increase the need for future government borrowing, again adding supply that pushes prices down and yields up.
Carol Ng, managing director of Derivative Logic, told GlobeSt.com that at least in the short-term, yields are probably on their way up. “The 10-year treasury yield equals growth plus inflation, and I am seeing both potentially going higher with the new administration and the incoming policies,” she said. “Hopefully, it is more growth than inflation, but we will have to see how it all shakes out.”
Long-term predictions are fraught with uncertainty and surprise. However, in the shorter term, experts that Barron’s quoted expect yields to continue rising. Peter Tchir, head of macro strategy at Academy Securities, has raised his near-term expectation of the 10-year yield to 4.75%. President of Bianco Research, Jim Bianco, has forecasted a 5.23% average on the 10-year yield. Mizuho Securities U.S. chief economist Steven Ricchiuto in November 2024 thought there was a good argument for a 5% yield on the 10-year.