Economists are falling over themselves in their hawkish comments. Goldman Sachs is forecasting that the US Federal Reserve will raise interest rates five times in 2022, versus four previously, with a hike expected in March. Bank of America economists have suggested they expect the Fed to hike rates by 25 basis points seven times this year. All this is bad news for REITs.
Undoubtedly, with rising risk free rates, REITs’ unit prices have already come under pressure. For instance, the FTSE ST REIT Index is down around 5% since the start of the year. Not surprising. According to SGX Research, the average yield spread for S-REITs in the past 10 years is 3.99%. As at Feb 8, the yield on 10-year Singapore government bonds is 1.87%, and on 10- year Treasuries 1.94% (see chart), and rising.
