Cost of Capital Outlook Amidst Uncertainty

The current outlook for the cost of capital is characterized by significant fluctuations in interest rates. For most of 2024, the U.S. base borrowing rate, measured by SOFR, was just above 5.3% but is anticipated to fall to around 4% later in the year. In contrast, long-term rates, particularly on 10-year Treasury bonds, have shown an upward trend, reaching approximately 4.71%. This discord between short-term and long-term rates, coupled with various uncertainties from tariffs to tax law changes, complicates financial modeling and outlook for both tax equity and debt markets.