Long bond yields hit highest level since 2007: What it means for your deals

[Travis Bernard]

Quick market update for anyone underwriting deals right now: the 30-year Treasury yield broke above 5.3% this week, the highest it’s been since 2007  (back when Lehman was still standing). This isn’t the Fed hiking rates; the Fed has actually held steady for five straight meetings. This is the bond market itself demanding more yield, driven by deficit concerns, a flood of new Treasury issuance, and inflation that won’t fully cooperate.

What this actually means for your portfolio:

Financing costs 30-year fixed mortgage rates are back around 6.75%. Still below the 2023 peak of ~8%, but the direction is wrong again. If you’ve got deals in the pipeline that assumed rates would keep drifting down, it’s time to re-run the numbers.

Cap rates on commercial/multifamily. Long Treasury yields are the benchmark “risk-free” comp for cap rates. When the 30-year moves up this much, the spread investors demand from real estate either compresses (bad for sellers) or cap rates widen (bad for anyone holding at yesterday’s valuation). If your deal only works at a 2023-era cap rate, stress-test it now, not after you’re under contract.

Refis just got harder. Anyone counting on a rate-and-term refi to pull equity or improve DSCR in the next 12 months should model a "rates stay elevated" scenario, not a "rates normalize" one.

Why this cycle feels different. Because it’s the long end, not Fed policy, driving this. That makes it stickier. The Fed cutting short-term rates won’t necessarily bring your 30-year mortgage rate down if the bond market stays spooked about deficits and debt supply.

Bottom line: Underwrite conservatively. Don’t bank on rate relief bailing out a marginal deal. If the numbers work at today’s cost of capital, you’re in a much stronger position than someone hoping for a 2024-style rate drop that may not come.

Anyone else adjusting their underwriting assumptions given this move? Curious how others are handling refi timing on deals coming due in the next year.