424. The Numbers Need Context: 5%+ Treasury Yields, AI Roadblocks, and Hotel Distress

Haley Keen (0:05)

Welcome to The TreppWire Podcast, the show where commercial real estate meets data and insights. This is our Week in Review for the week ending September 25th, 2026

I'm Haley Keen with Trepp, a data modeling and analytics firm for the CMBS, commercial real estate and CLO markets. I'm with Lonnie Hendry, Chief Product Officer, and Stephen Bushwam, Head of Applied Research and Analytics.

The market has given us plenty to discuss since last week's Fed rate hike. On Wednesday, the 10-year Treasury yield climbed above 5.1 percent during trading after a strong reading on business activity. While Fed Governor Michael Barr said further rate increases are likely to be needed, Richmond Fed President Tom Barkin also warned that inflation is spreading beyond energy and tariffs. Oil is back above $100 a barrel, and the administration is weighing how to respond to high diesel prices. On today's episode, we'll also look at two sides of the AI buildout. Corporate bond buyers are demanding more compensation to absorb a wave of AI-related borrowing, while Texas has paused new state-issued data center permits pending a grid audit. Later, our Property and Credit Stories of the Week will raise a question that runs through the week's episode.

When a building is busy or well-occupied, how much does that tell us about the income available to support its debt? We'll also do a Digging Through the Data segment on Marriott and Hilton-flagged hotels. Together, they represent more than 40 percent of the securitized lodging balance in Trepp's latest research. But their loan performance tells two different stories. Stephen, where do we start this week?

Stephen Bushwam (1:43)

I think we have to start with Wednesday's tension. I mean, that news was wild. So, the Business Survey data suggests that demand is holding up. In fact, demand is very strong, which is encouraging for property revenues. But stronger demand can also make inflation harder to tamp down. That helps explain why Barr is talking about more rate increases and why the 10-year treasury moved above 5.1 percent during the day and is reaching the highest levels since 2007

For Siri, the good news about economic activity can carry alongside it higher cost of financing. The AI stories show another limit to reading a headline number in isolation. Investors are still willing to buy debt from large technology companies, but the volume of borrowing has led them to demand wider spreads.

A long queue of proposed data center projects in Texas is now running into questions about the grid, which we've been talking about for weeks, if not months.

Water use and permitting are also headline issues. The investment plans alone cannot tell us when a project will be built or what it will cost to finance. We'll see that same need to look underneath the headlines and the property stories. Two buildings can report very similar occupancy and face very different outcomes because their cash flow, expenses and existing loans differ dramatically. It's also the right way to approach today's hotel data. The flag level numbers show us where the differences are. The individual loans help explain them. But this week was largely a week of geopolitical tension, higher oil prices and a question of ultimately, what is it going to take to tamp down inflation? How sticky will it be? How long will the tail be? And, gosh, at this point, seeing Wednesday's rates rise, it's a question of what's the ceiling going to look like? Initially, we thought 5% was kind of that holding, that tension level. Now, to me, it kind of feels like maybe 5 and a quarter is that next resistance point on the 10-year. I don't know. Do you feel similarly about this week's yield moves?

Lonnie Hendry (3:58)

Yeah, I mean, I think we were in agreement a couple weeks ago that 5% was the push-pull or the friction point, inflection point, whatever you want to call it.

It is interesting, though. I think people get a little bit desensitized as you hover around 5% for so long, and it doesn't materially change market appetite or market decision-making that once you cross over 5, the immediate impact is somewhat subdued. I mean, I would suggest that today, the biggest economic impact being felt across the spectrum is just the cost of diesel fuel and gasoline relative to a 25 basis point rate hike with the Fed. The 25 basis point rate hike was pretty much priced in. We were at 4.6 on the Treasury, 4.7, 4.8, eclipsed 5, but it was somewhat expected. I think the pressure at the pump is where people are really feeling it, but it hasn't really impacted the overall, as you reported last week, Stephen, on the pod, that consumer spending and everything else was still strong. So it'll be interesting to see how if this additional price premium at the pump is persistent, I think that could do some real damage on consumer spending.