Fixed Income Market Under Pressure: Implications for Hotel Financing in 2026

1) Signals from Fixed Income

The current situation is paradoxical: expectations of official rate cuts coexist with rising long-term yields. Three factors explain this trend:

• Fiscal sensitivity: growing concern over deficits and debt stock.
• Contained volatility, but with regional divergences.
• Debate on central bank independence in an increasingly complex political context.

Added to this is the risk of inflation persistently above 2% in the US, driven by wages and tariffs, keeping the 10–30-year segment higher than forecast. In Europe, although the ECB cut 25 bps in June 2025, the withdrawal of APP/PEPP reinvestments increases net bond supply, pushing yields upward.

2) A Regime Shift? “Higher for Longer” in Real Rates

Projections for 2026 point to positive real rates for longer, even if official rates decline. The world enters a phase of moderate growth with ample liquidity, but term premiums become more demanding to compensate for fiscal and geopolitical risks.

Some scenarios anticipate gradual rises in sovereign yields as the dollar weakens, suggesting steeper curves and tighter spreads. Others see tactical opportunities to lock in yields and manage duration ahead of proactive cuts, while warning that the short end may be overpriced if markets overestimate monetary easing.

3) Impact on Hotel Financing

a) Debt Cost and DSCR
With higher 10-year yields, the total cost of bullet or amortising structures will not fall significantly, even if official rates drop. This pressures DSCR and covenants, especially for assets with ADR and RevPAR sensitive to cycles.

b) Duration and Funding Mix
Staggering maturities and combining traditional banking with private debt is advisable for flexibility. For Capex, green or subsidised lines are key to reducing financial costs if projects demonstrate energy savings and ESG certifications.

c) Capital Structures and Contracts
The rise in long-term rates encourages sale & leaseback and joint ventures to share risk and protect cash flow. In negotiations: fix costs in key tranches, include performance-linked ratchets and re-pricing clauses in case curves normalise.

4) Asset Valuation: WACC, Yield and Expectations

Positive real rates and higher term premiums increase WACC, requiring higher transactional yields to close deals. In urban “core” markets, competition with sovereign bonds forces expectation adjustments. In leisure assets, defence lies in revenue growth (channel mix, dynamic pricing) and selective capex to boost cash generation.

5) Actionable Strategies for 2026

• Refinancing: bring forward processes if stable yield windows appear; use swaps/caps to hedge spikes.
• Maturity: Structure: avoid a “wall” in 2026–2028; stagger and combine bank and private debt.
• Green Capex: prioritise projects with measurable savings to access subsidised financing.
• Covenants: renegotiate metrics with re-benchmark clauses if long rates normalise.
• Valuation: review WACC quarterly; adjust exit yield and sensitivities to avoid over-leverage.

Conclusion

Until recently, consensus pointed to a prolonged cycle of cuts in the eurozone. However, the ECB has shifted its tone: after eight consecutive reductions since mid-2024, the official rate stands at 2%, and recent statements suggest further hikes cannot be ruled out if inflation persists.

This pivot introduces uncertainty and explains why the long end of the European curve remains tight: markets are starting to price in a “higher for longer” scenario for real rates. Something is changing in Europe’s monetary narrative, and it warrants close monitoring for any long-term financing strategy.

The fixed income market sends an unequivocal signal: long-term rates may stay elevated longer than headlines about cuts suggest. For the hotel sector, this means raising the technical bar in debt structuring, duration management and capex selection. At Horwath HTL Spain, we help owners, operators and investors navigate this potential regime shift and make informed decisions in Capital Markets.