Rising bond yields not usually positive for REITs, but some could gain from secular trends

The Edge Singapore
The Edge Singapore 3/12/2021 6:31 AM GMT+08  • 3 min read
Rising bond yields not usually positive for REITs,  but some could gain from secular trends
Inflationary pressures have pushed up risk free rates which may impact REITs negatively, including raising cost of debt.
Font Resizer
Share to WhatsappShare to FacebookShare to LinkedInMore Share
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

Inflation is a double-edged sword for REITs. Inflationary pressures may keep rents high, but they could also pressure interest rates indirectly, through yields on risk-free rates such as yields on 10-year bonds both in the US and in Singapore.

Yields on 10-year US treasuries have risen to as high of 1.6%, up 70% this year, as inflationary fears triggered by the US stimulus took hold. Rising bond yields are likely to affect interest rates, and in a roundabout way, discount rates that investment property valuations rely on. Eventually, capitalisation rates are also affected.

Hence, rising yields impact REITs in three main ways — on interest rates and hence their cost of debt, and cost of capital; on discount rates and capitalisation rates, and hence REITs’ capital values; and of course the yield spread - REITs take their pricing off risk-free rates, and REIT yields can rise in tandem with risk-free rates. If yields are going to expand, then something has to give and it’s likely to be the market price of the REIT.

For more insights on corporate trends...
Sign In or Create an account to access our premium content.
Subscription Entitlements:
Less than $9 per month
Unlimited access to latest and premium articles
3 Simultaneous logins across all devices
Bonus unlimited access to online articles and virtual newspaper on The Edge Malaysia (single login)
Loading next article...
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
Subscribe to The Edge Singapore
Get credible investing ideas from our in-depth stock analysis, interviews with key executives, corporate movements coverage and their impact on the market.
© 2022 The Edge Publishing Pte Ltd. All rights reserved.