Cap rates and interest rates are linked, but not one for one. This guide explains why the 10-year Treasury yield matters more to cap rates than Federal Reserve rate cuts, how other factors such as rent growth and risk premiums enter the picture, what has actually happened to rates since 2024, and what current data shows. In this guide, “investment grade” refers to tenants rated BBB‑/Baa3 or higher, not to property types (see the investment grade guide).
How Interest Rates Feed Into Cap Rates
A cap rate is net operating income divided by price. Investors can think of it roughly as a required return minus expected income growth, where the required return is a Treasury yield plus a premium for the property’s risk and illiquidity:
cap rate ≈ Treasury yield + risk premium − expected NOI growth
The 10-year Treasury yield is the usual benchmark, because real estate is a long-lived asset financed largely with fixed-rate debt. When the 10-year yield rises, buyers generally demand higher cap rates unless they expect faster rent growth or accept a thinner risk premium. The Federal Reserve sets short-term rates; it influences long-term yields but does not control them.
Why the Link Is Not One-for-One
- Risk premiums change. Cap rates often move less than Treasury yields in the short run, so the spread between them widens or narrows.
- Growth expectations differ by property type. Sectors where investors expect strong rent growth can carry lower cap rates for the same interest rates; sectors facing weak demand, such as many office markets, can see cap rates rise even when rates fall.
- Lease structure matters. A long net lease with fixed rent behaves more like a bond, so its price is more sensitive to long-term rates; short leases that reset to market rents are less so.
- Tenant credit matters. Leases to highly rated tenants usually trade at lower cap rates, and the gap between strong and weak credits can widen when markets are stressed.
- Private pricing lags. Sellers anchor to past sales, so transaction cap rates adjust more slowly than bond yields.
What Rate Moves Do to Value
For a property with $200,000 of net operating income:
| Cap rate | Value | Change from 6.50% |
|---|---|---|
| 6.00% | $3,333,333 | +8.3% |
| 6.50% | $3,076,923 | n/a |
| 7.00% | $2,857,143 | −7.1% |
| 7.50% | $2,666,667 | −13.3% |
With income unchanged, each half-point rise in the cap rate cuts value by roughly 7% at these levels. That is why the direction of long-term rates matters so much to buyers and sellers of long-lease property.
What Has Happened Since 2024
The Federal Reserve began cutting rates in September 2024 and, after three cuts in late 2025, ended 2025 at a target range of 3.50% to 3.75%. Long-term rates did not fall in step: the 10-year Treasury yield traded between 3.97% and 4.79% in 2025 and ended the year at 4.18%. It was 4.12% on October 1, 2025 and is 5.24% as of October 1, 2026. Expectations that rate cuts would quickly push cap rates lower depended on long-term yields falling, which did not happen in a straight line.
Current Data
| Measure | Current | As of |
|---|---|---|
| Median asking cap rate, net lease listings we track (6,747 listings) | 6.35% | October 19, 2026 |
| Median asking cap rate minus 10-year Treasury | +111 bps | October 19, 2026 |
| 10-year Treasury yield | 5.24% | October 1, 2026 |
| ICE BofA BBB US Corporate Index yield | 6.19% | October 1, 2026 |
Median asking cap rates by tenant credit rating:
| Tenant rating category (S&P, or Moody’s equivalent) | Median asking cap rate | Middle half of listings | Listings (tenants) |
|---|---|---|---|
| AA | 5.25% | 4.75% to 6.25% | 61 (7) |
| A | 5.25% | 5.00% to 6.00% | 327 (19) |
| BBB | 6.65% | 6.00% to 7.39% | 1,148 (24) |
| BB | 6.25% | 5.50% to 7.25% | 225 (16) |
| B | 7.00% | 5.75% to 8.35% | 385 (10) |
| Not publicly rated (private companies) | 6.15% | 5.20% to 7.74% | 723 (24) |
Active listings InvestmentGrade.com tracks with an asking cap rate (stated, or computed from stated income and price when no rate is stated), listings last observed October 19, 2026, grouped by the rating of tenants rated in their own name; franchised brands rated only through a parent company are left out because a parent’s rating applies to a franchisee’s lease only if the parent signs or guarantees it. Asking cap rates are not closed-sale cap rates, and location, lease term, and ground lease structure move cap rates as much as the rating. Categories with fewer than 5 listings are not shown (CCC and lower).
See NNN cap rates by tenant for individual tenants.
Refinancing, Buying or Selling?
If you are looking to refinance, restructure or cash out on a commercial property, or to buy or confidentially sell a net lease property, email team@investmentgrade.com or contact us.
Frequently Asked Questions
Do Fed rate cuts lower cap rates?
Not directly. Cap rates track long-term yields such as the 10-year Treasury more closely than the Fed’s short-term rate. In 2025 the Fed cut three times, but the 10-year yield stayed between 3.97% and 4.79%.
How much does a rise in cap rates reduce value?
With income unchanged, a rise from 6.50% to 7.00% reduces value by about 7.1%; from 6.50% to 7.50%, by about 13.3%.
Educational content only. InvestmentGrade.com is a commercial real estate brokerage and educational publisher. We do not sell, broker, underwrite, or solicit any bonds, securities, or investment products. Yields, ratings, and prices referenced fluctuate continuously and are sourced from public market data as of the date noted. Nothing on this page constitutes investment advice, an offer to sell, or a solicitation to buy any security. Consult a licensed broker-dealer, registered investment advisor, or tax professional before making any investment decision. For SEC investor education, visit investor.gov.
