Key Insights
- The Federal Reserve’s 25 bps rate cut marked its first in 2025, but instead of falling, 10-year Treasury yields moved slightly higher, showing the disconnect between short-term rate cuts and long-term yield movements.
- With short- and intermediate-term rates easing, investors are favoring 5- to 7-year fixed financing over longer-term debt. This shift is expected to support an increase in transaction volumes.
- The primary uncertainty for multifamily investors today is not the trajectory of interest rates, but rather, how much capital will return from the sidelines, which will depend on perceptions of NOI growth and the cost of capital.
The Trajectory of Mid- and Long-Term Debt in the U.S.
The Federal Reserve announced a 25-basis-point interest rate cut on September 17, a move largely in line with economists’ expectations, though somewhat smaller than what some investors anticipated. This marks the first rate cut of the year, following months of holding the federal funds rate steady at 4.25% to 4.50%. While rate cuts ripple across many sectors of the economy, real estate investors should pay particular attention to the response of the 10-year Treasury yield.
From an investor standpoint, interest rate cuts raise the hope that long-term Treasury yields will fall, easing financing costs, improving debt service coverage, and boosting valuations through stronger cash flows, along with investors shifting from money markets into real estate. The challenge is that the long end of the yield curve is less responsive to rate cuts than the short end. Long-term rates are driven more by broader market sentiment, economic growth expectations, inflation, and Treasury supply, so the 10-year may not fall in response to rate cuts and may even rise. This is shown during the last easing cycle, from September 2019 to December 2024, the federal funds rate fell 100 bps while the 10-year Treasury yield rose 84 bps, highlighting that long-term rates often respond more to market sentiment than to short-term rate cuts.
Chart 1: Change in 10-Year Treasury Yield During Historical Easing Periods
Source: YCharts1, Peakhill Capital
Treasury Reaction and Federal Reserve Policy Shifts
Since the rate cut announcement, 10-year Treasury yields have risen 4.5 bps, with the 30-year Treasury yield also edging upward by 2.5 bps.2 This movement suggests that investors anticipate lingering inflationary pressures and are demanding higher returns on longer-term debt. This increase could also suggest the market was expecting a more significant rate cut, considering the 10-year has fallen 25 bps since May.
Chart 2: 10-Year Treasury Yield Response* to 25 bps Rate Cut
*Sourced on September 18, 2025
Source: CNBC3, Peakhill Capital
The Treasury auction cycle provides further insight into investor sentiment at the long end of the curve. The most recent 30-year bond auction drew a bid-to-cover ratio of 2.38, slightly lower than the 10 previous 30-year bond auctions, which have an average bid-to-cover ratio of 2.41. In contrast, the Treasury revealed this month’s auctions of 3-year notes and 10-year notes reported above average demand.4 These dynamics reinforce a broader market narrative: short-term rates are likely to continue sliding, and investors are rationally locking in mid-term financing while long-term rates remain elevated.
Although it is unclear what cuts are to come, there will be 2 more announcements from the Fed before the end of 2025. As of now, the Fed is in a balancing act between inflationary concerns regarding tariffs and a weaker-than-expected jobs market. Federal Reserve Chair Jerome Powell has indicated that more cuts are to follow in October and December, the extent of which is unclear at this point in time. According to U.S. Bank Wealth Management, cumulative Fed fund rate cuts are projected to sit around 0.58% in December.5
Chart 3: Market Projections for Cumulative 2025 Fed Funds Rate Cuts
Source: U.S. Wealth Management5, Peakhill Capital
Impact on Financing Structures
From a CRE perspective, these interest rate dynamics have meaningful implications. Falling short-term and intermediate-term rates are encouraging a shift toward 5- and 7-year fixed financing structures, while the relative stickiness of long-term rates diminishes the appeal of 10-year debt. As a result, transaction volumes should gradually increase, as borrowers and lenders navigate a more predictable and cost-effective financing environment. Underlying this financial environment is a persistent demand for rental housing. This is further supported by continued rate cuts expected to spur job growth, as outlined in the goals stated by the Federal Open Market Committee Chair Jerome Powell on September 17.6
Chart 4: CMBS Deal Volume*
*144A CMBS Deal Volume
Source: SEC7, Peakhill Capital
While verified multifamily REIT occupancy data can vary, reports from major market participants indicate portfolio occupancies approaching historically high levels, with oversupply confined to a few localized markets. Looking three to five years ahead, annual rent growth could approach 4-5% in many markets, as the pipeline of new multifamily development remains constrained. These fundamentals, combined with more favorable financing conditions, support a cautiously optimistic outlook for real estate investors over the medium term.
U.S. Market Outlook for CRE Investors
The current trajectory of the real estate market is largely shaped by interest rate dynamics, with a clear shift toward short- and mid-term debt as investors seek attractive terms in the face of a steepening yield curve. The key uncertainty lies in how much capital will return from the sidelines, which will depend on perceptions of NOI growth and the cost of capital. As a result, investors are increasingly favoring mid-term debt to secure attractive terms, while caution persists at the long end, reflected in slower demand for 30-year Treasuries.
At the asset level, the persistent undersupply of rental housing and lack of new home sales continue to support strong occupancy and rent growth. With rates easing and more clarity around borrowing costs, the environment is becoming more attractive for capital deployment. For investors focused on mid-term growth, this is an opportune time to re-enter the market.
ICYMI: Catch up on our latest episode of Market Minutes Q2 2025: U.S. Multifamily Investing Amid a Stabilizing Interest Rate Environment.
Market Minutes Q2 2025: U.S. Multifamily Investing Amid a Stabilizing Interest Rate Environment
Sandor Biderman, Managing Director of Peakhill Capital U.S., joins us to break down the trends that defined Q2 2025 in the U.S. multifamily market. From the evolving relationship between cap rates and interest rates to the removal of Section 899 from the Big Beautiful Bill and its implications for cross-border investments, Sandor delivers timely insights.
Let’s continue the conversation
Footnotes
- YCharts. 2025. 10 Year Treasury Rate Historical Data. ↩︎
- CNBC. 2025. 10-Year Treasury yield rises after widely expected quarter-point cut by Fed. ↩︎
- CNBC. 2025. U.S. 10-Year Treasury. ↩︎
- Nasdaq. 2025. Thirty Year Bond Auction Attracts Roughly Average Demand. ↩︎
- U.S. Wealth Management. 2025. How changing interest rates impact the bond market. ↩︎
- Federal Reserve Board. 2025. Transcript of Chair Powell’s Press Conference September 17, 2025. ↩︎
- U.S. Securities and Exchange Commission. 2025. Commercial Mortgage-Backed Securities (CMBS) Issuances. ↩︎
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