U.S. Treasury Yield Curve Nominal and Real Q2 2016 vs. Q1 2016
At the end of the 2nd quarter of 2016, U.S. Treasury yields, on a nominal basis, were essentially unchanged at the shortest end, but eased up a touch as longer maturities are considered, with what appears to be a 25 or 30 basis point increase for all maturities 5 years or greater. On a real basis, for maturities of 5 years or more, all yields increased, but by less than on a nominal basis.
Interest rates tend to affect commercial real estate property in numerous ways (see this, this, and this). Borrowing costs are affected directly, with higher interest rates increasing the cost of borrowing and therefore negatively affecting demand. Cap rates generally move with interest rates, although not in lockstep, with considered analyses generally seeming to conclude that capitalization rates on average move in the direction of 10-year rates, but only about a third as much. Interest rates affect the economy, which in turn affects vacancy and rents. In short, the interest rate environment is highly important to commercial real estate investment.
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