Changing Rates, Changing Markets: The Role of Prudent Yield and Real Assets
Why bond-market volatility matters to income investors
Interest rates can change quickly, but their effects on real estate and credit performance often take longer to emerge. For investors, the recent bond-market drawdown has been a reminder that income and capital stability are not the same thing. For real estate lenders, it reinforces the importance of understanding how changing market conditions affect borrowers, collateral, and the ability to repay.
In its October Research Investment Committee (RIC) report, Bank of America highlighted the vulnerability of conventional bond indexes to interest-rate and inflation risk. The analysts suggested that investors consider strategies with underlying real asset exposure and a focus on prudent yield. The broader lesson is that traditional fixed income does not always provide the diversification or capital stability investors expect. Bond prices can decline materially as yields rise, even when issuers continue making their contractual payments.
Returns in secured real estate lending are driven by different factors than those in traditional fixed income. Rather than depending on movements in bond prices, a lending portfolio’s performance depends on collateral quality, loan structure, and disciplined underwriting. When executed well, these factors can provide a steady source of income and real asset exposure within a broader portfolio, with a focus on capital preservation.
California real estate is adjusting unevenly
Higher borrowing costs and affordability constraints continue to weigh on housing activity. Recent California data illustrates the difference between transaction volume and property values: September existing-home sales declined 6.5% year over year, while the statewide median home price rose 1.7%.*
Lower sales volume does not necessarily mean lower home values. Roughly half of outstanding mortgages (49.1%) carry rates of 4% or less, including 19.2% below 3%.** This rate-lock effect discourages owners from selling, which limits supply and may help support prices.
For real estate investors, this environment may also create opportunities to acquire properties where pricing, rental income, or long-term value justify the purchase. Just the type of scenario where Stonecrest’s loan programs are most needed.
Capital preservation begins with underwriting
For real estate lenders, the central question is not simply where rates are headed, but how a loan will perform if market conditions become less favorable. Disciplined underwriting, with a focus on high-quality collateral and the borrower’s ability to repay, is central to Stonecrest’s approach. Conservative loan-to-value ratios are intended to provide a cushion if home values decline.
These principles are reflected in the portfolio of Secured Income Fund II. As of Q3 2026, the Fund held 184 loans across 25 counties, with approximately $272 million in gross loan portfolio and an average loan-to-value ratio of 51.74% at origination. The Fund’s fixed NAV (Net Asset Value) differentiates Secured Income Fund by limiting interest rate risk when compared to publicly traded bonds.
A complement, not a replacement
As investors reassess the role of traditional fixed income, the question is not whether one asset class should replace another. It is whether portfolios draw income from a thoughtful mix of sources, with a clear understanding of the risks each carries. In an uncertain rate environment, prudent yield, real asset exposure, and disciplined lending remain important considerations for investors seeking income and capital preservation.
As always, we value the opportunity to connect with our investors and partners. If this update raises questions or prompts a conversation, we encourage you to reach out to your relationship manager or contact us directly at investments@stonecrest.net.
* California Association of Realtors, September Home Sales and Price Report, October 19, 2026
** Realtor.com Research – The Slow Unlock Stalls as Rates Climb, October 22, 2026
This material is for informational purposes only and is intended solely for the use of the recipient. It does not constitute an offer to sell or a solicitation of an offer to buy any security. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. Forward-looking statements are based on current expectations and assumptions and are subject to change without notice; actual results may differ materially.
This communication is intended for investment professionals and accredited investors only and is not suitable for retail investors. It should not be redistributed without prior written consent.
Secured Income Fund-II is not responsible for any investment decisions made based on the information contained herein. Recipients should conduct their own due diligence and consult with their legal, tax, and financial advisors before making any investment decisions.