When January's inflation read proved stickier, and higher, than predicted, the lingering hopes of an early rate cut frizzled away.
Something else happened as well. The yield on the 10-year Treasury jumped from 4.17% to 4.31%. By the end of Wednesday, it had edged back down to 4.27%, but that's still a long way from the 3.87% that February started with. What does that mean for lending rates?
Many, probably most, CRE lenders look to baseline rates when setting their own. They start with something like the Secured Overnight Financing Rate (SOFR) or the 10-year Treasury yield, and then add an additional amount — the spread. The 10-year had been coming down as markets looked forward to rate reductions by the Fed. Except, now not so much. Because SOFR and the 10-year are strongly correlated, although they have a timing gap, there's the potential for eventual upward pressure there.
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