Fixed vs. Floating in 2026: Reading the Yield Curve for Your Next CRE Loan
The Treasury curve has re-steepened, and not because long rates have fallen. Short-term rates have dropped materially while the 10-year and 30-year have barely moved. That asymmetry has direct implications for CRE borrowers deciding between floating-rate bridge debt and fixed-rate permanent financing.
Where the Curve Sits Today
The 2-year Treasury closed May at 3.99% (FRED · DGS2 · 2026-05-28). The 5-year is at 4.15% (FRED · DGS5 · 2026-05-28). The 10-year sits at 4.45% (FRED · DGS10 · 2026-05-28) and the 30-year at 4.98% (FRED · DGS30 · 2026-05-28). Twelve months ago the 10-year was at 4.46%; it has moved just 1 basis point over that period (FRED · DGS10 · 2026-05-28). The 30-year has moved by a comparable amount (FRED · DGS30 · 2026-05-28).
The move in this cycle is concentrated at the short end. The effective Fed Funds Rate closed May at 3.62% (FRED · DFF · 2026-05-28), down 71 basis points year-over-year. SOFR followed closely at 3.63% (FRED · SOFR · 2026-05-29), down 72 basis points over the same period. For borrowers on floating-rate loans indexed to SOFR, in-place debt service is meaningfully lower than a year ago. For borrowers seeking fixed-rate financing anchored to the 10-year, the rate environment looks essentially unchanged.
Why the Long End Is Not Following
Short rates respond to monetary policy. The Fed has delivered rate cuts, the market has absorbed them, and the forward curve is no longer pricing in aggressive additional easing.
Long rates respond to different forces: inflation expectations, fiscal trajectory, and term premium. Those factors have kept the 10-year range-bound even as the Fed eased. Borrowers who deferred fixing rate in 2025, waiting for the 10-year to fall materially, were largely disappointed. That is worth understanding before making the same calculation in 2026.
Implications by Deal Type
Stabilized, long-hold assets. Fixed-rate debt from life companies, CMBS conduit, or agency lenders prices off the 5-year or 10-year Treasury. With the 5-year at 4.15% (FRED · DGS5 · 2026-05-28) and the 10-year at 4.45% (FRED · DGS10 · 2026-05-28), all-in fixed rates after credit spreads will clear above SOFR-based floating debt. For borrowers with long hold periods and no near-term exit, paying for rate certainty is defensible. The 30-year Treasury at 4.98% (FRED · DGS30 · 2026-05-28) signals the market is not pricing in dramatic long-run rate compression; waiting for the long end to fall sharply is a bet against the forward curve.
Transitional and value-add assets. SOFR at 3.63% (FRED · SOFR · 2026-05-29) is materially cheaper than fixed-rate alternatives in absolute terms. For a 12-to-24-month business plan, floating-rate bridge debt with the right rate cap can be the more efficient capital structure today. Cap costs, available strike levels, and lender requirements on cap structure all need to be modeled from day one. We are watching this closely in current client processes.
Development and construction. Construction loans float off SOFR during the build period, then require a fixed-rate takeout at stabilization. With SOFR at 3.63% (FRED · SOFR · 2026-05-29) and the 5-year Treasury at 4.15% (FRED · DGS5 · 2026-05-28), the construction phase is cheaper than a year ago. But the takeout assumption carries real risk: if long rates stay elevated through stabilization, the fixed-rate refinance lands at a meaningfully higher rate than the floating carry during construction. Underwriting the takeout conservatively and stress-testing it is not optional.
Credit Spreads as the Other Variable
The benchmark rate is only half the cost equation. Lender credit spreads over SOFR or Treasuries are set by lender type, asset class, leverage, market, and sponsor. Investment-grade corporate yields at 5.11% (FRED · BAMLC0A0CMEY · 2026-05-28) and high-yield corporates at 6.86% (FRED · BAMLH0A0HYM2EY · 2026-05-28) reflect where capital is priced across the credit quality spectrum, and debt funds targeting returns in CRE typically benchmark against those levels.
Bank CRE loan delinquencies remain contained at 1.56% as of January 2026 (FRED · DRCRELEXFACBS · 2026-01-01), roughly flat year-over-year. That stability supports continued bank appetite for well-underwritten CRE credits and keeps bank spreads from widening at current leverage levels.
Structural Factors Beyond Rate
Fixed-rate debt typically carries defeasance or yield maintenance provisions. Exiting before maturity can be expensive. Borrowers who locked long-term fixed debt in 2020 and 2021 and then needed to sell or recapitalize in a higher-rate environment confronted this directly. Floating-rate debt generally offers more prepayment flexibility, at the cost of rate uncertainty.
Recourse terms, covenant packages, extension options, and property-level flexibility also differ materially across lender types. Rate is the headline variable in any fixed-versus-floating analysis; it is rarely the only relevant one.
How BSA Approaches This
In current client processes, our team runs side-by-side comparisons across fixed and floating alternatives, stress-tests takeout scenarios on development deals, and negotiates cap structures in parallel with loan terms. The optimal structure depends on the specific asset, business plan, and lender set.
If you are evaluating a refinancing, recapitalization, or new acquisition financing and want a current read on what lenders are underwriting at today's curve, contact Barrow Street Advisors. We work across bank, life company, agency, CMBS, and debt fund capital sources in the US, UK, and Europe.