When Will Fed Unwind the Taper? via the Blog of the Real Estate Center

This is the toughest question I get. It’s a big deal. It is important to a lot of people. It impacts people in a lot of different ways.

For real estate owners, an increase in rates could cause an increase in cap rates. Values could decline. Even though the correlation between cap rates and Treasuries is low, there is some positive correlation. For owners of REIT stocks, it means the same thing.

For bond holders, it means the threat of sizable capital losses on their bond portfolios. For preferred stock owners it means a lot too. Preferred stock is just like a bond that may never mature. A modest 1 percent increase in the ten-year Treasury could cause a 15 percent loss in value. This loss could easily eat up two or three years of preferred stock dividends.

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