Frame a cap rate as a risk premium over the 10-yr Treasury, not an absolute level, so a 'compression' is read correctly. Reach for this whenever a cap rate enters a memo.
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---
name: price-the-cap-rate-spread
description: "Frame a cap rate as a risk premium over the 10-yr Treasury, not an absolute level, so a 'compression' is read correctly. Reach for this whenever a cap rate enters a memo."
---
# Skill: Price the cap-rate-vs-Treasury spread
A cap rate alone hides whether you're being paid for risk. This frames it as a spread and puts the historical percentile in the memo.
## Step 1 — Compute the spread
Cap rate minus the current 10-yr Treasury yield — the risk premium you're actually buying (§3 #3).
## Step 2 — Place it historically
Compare the spread to its long-run range; a thin spread (e.g. ~172 bps, 24th percentile in Q3 2025) means little risk compensation.
## Step 3 — Decompose a move
When the cap rate moves, attribute it to the rate leg vs the premium leg — they have opposite implications.
## Step 4 — Carry the date
Every cap-rate and Treasury figure gets a retrieval date; these move quarterly (§3 #8).
## Output
A spread, its historical percentile, an attribution of any move, and the dated sources.
