FILE PHOTO: A Wall Street sign outside the New York Stock Exchange - Shares in real estate companies fell on Friday, adding to a massive sell-off the previous day, when bond yields jumped to their highest levels in 16 years after the Federal Reserve signaled that U.S. interest rates would stay high for longer.
The U.S. Treasury 10-year yield, fell slightly on Friday, after rising on Thursday to around 4.5%, its highest since 2007. This provided tempting returns for fixed-income assets, making the relatively high dividend payouts of Real Estate Investment Trusts a little less tempting. "Not only are REIT's bond substitutes but they also rely on borrowing so that just makes them doubly interest-rate-sensitive," said Jack Ablin, chief investment officer of Cresset Capital who says that even though the sector seems cheap by some measures, he is not ready to step in right now.
But Gina Szymanksi, portfolio manager for REITs at AEW Capital Management, said she expects Treasury yields will peak around current levels, which will help REIT stocks that have "already baked in" 10-year Treasury yields in this range.