Why Bond Market Volatility Matters for Commercial Real Estate

The Bond Market is headline news these days.

Since the second quarter 2025 tariff announcements, long-term U.S. Treasury yields have moved along a new secular trend. We are seeing a deeper, more lasting shift in market conditions rather than a blip that will reverse itself.

Commercial mortgages typically track 10-year U.S. Treasuries. That makes it a useful proxy for what comes next in commercial real estate

Why are bonds suddenly in the headlines?

Background

The bond market is the chassis of capital markets, intending to provide a stable foundation for the economy. Companies, individuals, and governments need access to debt for a variety of reasons (acquisitions, real estate, homes, pensions, etc.), and the bond market provides access to that debt.

Major borrowers - governments mostly - have been flooding the market with debt for decades to fund their obligations. For the first time ever, the U.S., we just crossed $40 trillion in national debt.

Governments issue bonds that mature over different time horizons. Simply, the U.S. issues;

• short-term bonds which mature in under one year,
• medium-term bonds which mature from two to ten years), and
• long-term bonds (matures between ten and thirty years).

Normally, long-term bond holders require a “term premium” to hold longer term debt. meaning that yields on these bonds are higher than short- and medium-term bonds (if we have a yield curve inversion, this theory does not typically hold true).