New Treasuries Could Lower The Cost Of Borrowing For Real Estate

Feb 14, 2025

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As real estate investors we are highly attuned to what is happening in the bond market. The key benchmark figure for us is the yield on the 10 year Treasury. If the yield goes up, then the cost of capital goes up.

I’m going to draw your attention to some policy work that was made public by folks that are now closely connected with the new administration in Washington.

The negotiations with NATO members is heating up with the US President making it clear that he expects them to step up and meet their requisite commitments of 2% of GDP under the NATO treaty. So far the US has been spending far in excess of their share and has not been demanding payment from the other NATO members.

I believe the new administration will find ways to fund the military expenditures of the US with external funding. There won’t be direct payments to the US for protection.

What If the US negotiates continued protection for those countries who don't meet their NATO commitments, but purchase US bonds at zero interest instead? This would have the effect of lowering the cost of borrowing for the US Government. But it would also mean that demand for Treasuries in the private market would be fighting for a smaller pool of interest bearing instruments, which in turn would lower the yield. The net effect could be the lowering of borrowing costs for real estate investors.

You definitely want to be tracking developments in this arena.

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