Treasuries & Multifamily…? - Q3 2025 (bonus edition)
Below is a chart of the US 10 Year treasury from 1993 through today. For over three decades, yields moved within a well-defined downward channel. This long-term downtrend persisted through major economic events such as the Great Financial Crisis (2008–2009) and COVID-19 pandemic (2020) and even the Dot-Com Recession (2002), all of which triggered sharp yield drops.
However, post-COVID, yields decisively broke out of the long-standing downtrend channel largely due to inflation. As of 2025, yields are consolidating in a triangle formation just below 5%, suggesting a period of indecision. This structural shift may signal a regime change in interest rates, driven by persistent inflation pressures, fiscal dynamics, or shifts in monetary policy. Investors should consider the implications of higher-for-longer rates when evaluating fixed-income and risk asset exposures.
So What's the Big Deal?
The breakout in the 10-Year Treasury yield is a big deal for multifamily investors because it directly affects financing costs, cap rates, and property valuations:
1. Higher Interest Rates = More Expensive Debt
Most real estate investors rely heavily on leverage. As the 10-Year Treasury (the benchmark for long-term fixed-rate debt) rises, lenders increase interest rates. This shrinks cash flow and reduces returns unless rents rise fast enough to compensate — which isn’t always the case.
2. Cap Rate Expansion Risk
Rising Treasury yields often lead to higher cap rates, which lowers asset values. If you bought at a 4% cap rate and the market shifts to 5%, your property value can drop significantly — even if NOI stays flat.
3. Refinancing Becomes Tricky
Deals underwritten with expectations of low refi rates are now facing rate shock. If your loan matures soon, you might need to bring more equity to the table or accept a lower valuation.
4. Investor Sentiment Shifts
Treasuries now offer a “safe” 4–5% return. That puts pressure on multifamily deals to offer higher risk-adjusted returns, especially for passive investors who previously saw real estate as the only yield game in town.
In short: the multi-decade tailwind of falling interest rates is over. We're in a new environment where conservative underwriting, strong operations, and value creation matter more than ever.