For CRE investors, the 10-year Treasury Note yield is a constant focus—serving as the bedrock for non-risk interest rates. But to truly grasp the pulse of the market, savvy investors know that the real story is often found in the yield spreads, which reflect the risk premium that keeps the market dynamic and alive.
Recently, Trepp dove into a decade’s worth of data, scrutinizing industry averages and asset types to unravel the nuances of CRE yield spreads. Its analysis spanned from the first quarter of 2015 through the first quarter of 2025, comparing the 10-year Treasury yield to various bond indices. The spread between the 10-year and the ICE BofA U.S. Corporate A Bond index—representing investment-grade corporate bonds—averaged 0.91% over this period. Quarterly data revealed that this spread held at or above 100 basis points a remarkable 71% of the time.
Delving deeper, the ICE BofA U.S. Corporate BBB index, still investment-grade, but a notch below A-rated—demonstrated a strong correlation (81%) with the A index, though with a slightly higher average spread of 155 basis points. Meanwhile, high-yield corporate bonds, which fall outside the investment-grade category, displayed significantly higher spreads and greater volatility, averaging a hefty 410 basis points. These high-yield spreads are particularly sensitive to shifts in credit quality and broader economic conditions.
Recommended For You
Turning to CRE specifically, the spread between CRE cap rates and the 10-year Treasury stood at 393 basis points at the start of 2015. By the first quarter of 2025, this had narrowed to 180 basis points. For much of the decade, the spread between CRE cap rates and both the A and BBB bond indexes remained relatively stable—with the latter benchmark showing a slightly lower spread compared to CRE. However, beginning in the third quarter of 2021, the CRE spread over these bond categories began to contract. From the second quarter of 2022 through the second quarter of 2024, the BBB and A indexes acted as both upper and lower bounds for CRE’s movement, until in Q2 2024, the CRE spread once again rose above both, ultimately settling at 1.80% over the 10-year Treasury.
These historical comparisons offer crucial context. When examining individual property types, the cap rate spreads over the 10-year yield have shown increasing divergence. In Q1 2015, retail led with a spread of 4.24%, closely followed by industrial at 4.14%, office at 3.93%, and multifamily at 3.80%. The overall average mirrored the office sector at 3.93%. This clustering persisted until early 2020, when the spreads began to widen. By Q1 2025, the landscape had shifted dramatically: office topped the list at 2.28%, followed by retail at 1.62%, multifamily at 1.11%, and industrial at just 0.33%. The overall average for all property types stood at 1.80%.
As Trepp’s analysis underscores, yield spreads are more than just numbers—they signal relative value, investor sentiment, and the ever-present risk premium. In times of uncertainty or economic weakness, these spreads typically widen; during periods of growth and optimism, they narrow. With most of the first half of 2025 behind us, the CRE market waits with anticipation to see where these critical yield spreads will land by the end of next quarter.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more inforrmation visit Asset & Logo Licensing.
