CRE Lenders Defy Treasury Volatility to Sustain Lending

Treasury Yield Turbulence Shakes Up Expectations

Commercial real estate lenders remain active even as Treasury yields swing higher, creating turbulence for rate-sensitive investors. Globe St reports that banks and private lenders have continued expanding CRE portfolios into mid-2026, even as the five- and ten-year Treasurys surged 55 to 80 basis points following the onset of the Iran conflict on February 28. That geopolitical shock, coupled with persistently high fuel costs and inflation uncertainty, could have threatened lending flows. Instead, lenders are supporting sales activity and keeping spreads steady, according to Cushman & Wakefield Senior Economist Adrian Ponsen and Federal Reserve data.

This willingness to lend into market chop marks a departure from typical risk-off cycles, where a spike in Treasury yields quickly weakens CRE deal-making. Historical patterns have seen lenders push up spreads and buyers retrade. Yet with banks growing CRE loan portfolios at an accelerated pace since March, transaction pricing and activity have displayed unanticipated resilience through Q2 2026.

The Details

Geopolitical risk and inflation jitters caused a dramatic jump in borrowing costs, with Treasurys rising far more abruptly than in early 2026’s placid market. Gasoline and diesel prices have added inflation pressure, with AAA reporting regular gas averaging $4.00 per gallon and diesel at $5.14 as of July 21—both climbing in recent weeks. Even as headline CPI inflation cooled to 3.5% in June from 4.2% in May, and the core PCE index hovered at 4.1% in May, policymakers have been cautious. Fed Chair Kevin Warsh refrained from declaring victory, highlighting uncertainty about whether inflation will return to the 2% target.

The CME Group’s FedWatch tool now gives a 63.2% probability to another federal funds rate hike at the September 16 meeting. Under normal conditions, this mix of volatile Treasurys and monetary tightening would lead lenders to restrict CRE credit and widen spreads, pressuring deal pricing. Cushman & Wakefield notes, however, that sales pricing in the sector has largely held up, with terms remaining unusually competitive for borrowers even as risk-free rates surge.

Liquidity Drives Lending Stability

Instead of pulling back, banks have doubled down on CRE. Ponsen’s analysis shows commercial banks added about $1.9B in net new CRE loans weekly from March to June 2026—almost twice the 2025 average. This surge in on-balance-sheet lending is tightening the spread between risk-free and CRE lending rates, cushioning borrowers against all-in borrowing cost spikes. As a result, deal flow remains active and pricing has not suffered the typical markdown associated with rising Treasurys.

The market sees a complex push-pull: rising base rates are increasing hurdle rates for acquisitions and refinancing, yet supportive bank credit signals confidence in commercial real estate fundamentals. That confidence, as expressed by above-trend lending activity, has helped offset the macro shock from Treasury and oil market turbulence. The same rate pressure is also creating uneven leasing conditions across property markets, even as financing remains available for well-positioned assets. Cushman & Wakefield reports “very few signs” of pricing capitulation so far, indicating that capital remains available and supportive for deals.

Resilient Spreads Amid Policy Uncertainty

Bank lending growth comes at a delicate moment. After several quarters of “wait-and-see,” lenders’ willingness to extend new credit—even as headline inflation softens—reflects notable optimism about CRE performance. This contrasts with earlier cycles, in which tightening by the Federal Reserve quickly choked off lending and led to rapid repricing. According to Federal Reserve data, the sustained increase in bank CRE loans not only absorbs some Treasury volatility but also signals faith in underlying asset stability.

The gap between Treasurys and all-in CRE borrowing costs—”spreads”—remains better for borrowers than most would expect in this sort of risk-off climate. With spreads compressed, investors bear higher base rates but benefit from lenders’ reluctance to reprice risk premiums. Per Adrian Ponsen, this dynamic continues to prop up transaction velocity, as sellers and buyers can still meet on pricing. Still, risks remain if inflation re-accelerates or the Fed turns more aggressive. For now, capital stack stability and ample liquidity are blunting the impact of bond market shocks on real estate returns.

What’s Next

CRE professionals should watch closely as US inflation and policy developments unfold into fall. If the Fed raises rates again in September, it could eventually pressure banks to pause aggressive lending, which in turn may widen spreads and weigh on valuations. Conversely, a stabilization or reversal in Treasury yields or inflation could reinforce today’s unexpectedly robust lending environment. Until those signals crystallize, Cushman & Wakefield’s data suggests that lenders remain open for business—and that healthy liquidity, rather than base rate movements alone, will dictate the fate of CRE financing and deals in the months ahead.