August Market Rate Update
Each month, the IAACU Small Business Team aims to provide you with insights into the current trends in Commercial Real Estate market rates, which are influenced by movements in the US Treasury yield.
Since June 2023, the 5-year US Treasury yield has remained within a consistent range, but this was finally broken on August 2, 2024. Domestically, concerns are growing that the Fed may have been too slow in reducing rates, potentially missing the opportunity for a “soft landing” and possibly steering the US economy towards a recession. Traders are increasingly anticipating an early “emergency rate cut” even before the Fed’s September meeting. This anticipation has dropped the 5-year US Treasury yield to 3.62% as of August 2nd, a level not seen since January 23, 2023, nearly 20 months ago.
With this break in market structure, a new range has yet to establish itself. We expect the previous support floor to be around 4% and to now act as a resistance ceiling, likely keeping the 5-year US Treasury rate below 4% in the foreseeable future. Based on price history, we anticipate rates will continue declining over the next month. Adding the typical 3.0%-4.0% risk margin that IAA charges on commercial loans brings the current 5-year commercial rate down to 6.5%-7.5%. We may even see rates as low as 6% for strong commercial credit before the end of August.
Read our July Market Rate Update.
*Rates from Resource Center | U.S. Department of the Treasury as of August 7, 2024.
