The Debt Stack: Week of May 12, 2026

Rates This Week

Fed Watch

Rate cuts priced through 2026: Zero.

After months of the market expecting three, then two, then one cut, the bond market has given up entirely. According to Bloomberg’s Edward Bolingbroke, swaps linked to Fed rate decisions now show more than 50% probability that the Fed hikes rates before April 2027.

The Fed held steady last week with three dissenters, an unusually high level of internal disagreement. Next FOMC meeting: June 17-18.

For deeper analysis on the Warsh transition: Read JP’s take on Pensford

What Moved This Week

PCE inflation surged 0.7% month-over-month, the largest single-month jump since June 2022. Mohamed El-Erian wrote that “the velocity of change outpaced the capacity of some frameworks to contain it.”

Oil swung between $110-$126 in 48 hours on continued Strait of Hormuz blockade uncertainty. The UAE’s OPEC departure compounded energy market instability.

The S&P 500 posted its best month since 2020, up 10%, driven by AI earnings surprises. The disconnect between equity optimism and bond market caution is widening.

CRE Debt Signal

• Multifamily cap rates dropping below 5% in select markets, driven by capital seeking CRE as an inflation hedge (GlobeSt)
• AvalonBay-Equity Residential merger talks: Jay Parsons notes the combined entity would control less than 4% of apartments in any market. Deal driven by both REITs trading below NAV.
• Goldman Sachs eyeing office debt outside NYC, seeing incremental yield vs. other property types

Action Items

1. Re-run refinancing scenarios at today’s rates. If your model assumes any rate cuts, update it to zero cuts through year-end.

2. Check cap expiration dates across your portfolio. Rising oil + rising vol = rising cap replacement costs. Know your exposure.

3. Stress-test covenant compliance. Run your DSCR and debt yield tests at current rates, not origination rates. LoanBoss does this automatically. See how it works.

4. Review floating-rate exposure. With hike probability above 50%, unhedged floating-rate debt carries meaningful upside risk.

Deeper Reading

• Interest rate caps: how they work in your portfolio (LoanBoss)
• Caps 101: the mechanics of how caps are structured (Pensford)
• Cap and Floor Pricer: download the latest SOFR pricing tool (Pensford)

The Debt Stack is published every Monday by the LoanBoss team. It is not financial advice. For hedging strategy, talk to Pensford.