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The yield on the 10-year Treasury note rose to its highest level since 2002 during Thursday’s trading session as rising borrowing costs impact the economy and households.
Yields on longer-term Treasuries have risen this year amid geopolitical uncertainty caused by the war in Iran and growing federal budget deficits, tighter monetary policy and increased competition in the bond market due to increasing levels of corporate debt issuance due to the development of AI.
The yield on the 10-year Treasury rose to 5.34% during Thursday’s trading session, its highest level since 2002, before falling later in the day and on Friday.
Brian Therien, senior analyst at Edward Jones, told FOX Business that rising Treasury yields “could act as a headwind by raising borrowing costs for households and businesses,” which could lead to a slowdown in interest-rate-sensitive sectors of the economy, like housing and auto sales, despite a strong job market and resilient consumer spending.
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Higher Treasury yields can impact consumers through higher interest rates, but they can also boost savers and some investments. (Getty)
“The most immediate effect is usually through variable rate debt, such as credit cards, home equity lines of credit and variable rate mortgages. The rates on these loans are often more closely tied to short-term benchmark rates than to long-term rates,” Therien explained.
The 10-year Treasury bond is a key benchmark for the American economy. Interest rates on 30-year fixed-rate mortgages tend to move in tandem with changes in the 10-year yield.
This also influences auto loans and fixed-rate student loans through a similar process. Therien said “consumers considering new loans should prepare for higher rates and payments.”
Mortgage rates hit highest level since 2023 as bond yields rise
Mortgage rates tend to increase along with long-term Treasury debt. (Brett Coomer/Houston Chronicle via Getty Images)
He added that rising interest rates had some benefits when it came to saving and investing.
“Savers and fixed-income investors are earning more income. High-yield savings accounts, money market funds, CDs and bonds generally offer more attractive yields than earlier this year,” Therien said.
“For long-term investors, higher starting yields can improve the return potential of bonds, with a larger portion of the expected return coming from interest income rather than price appreciation.”
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Geopolitical uncertainty caused by the disruption of oil flows from the Strait of Hormuz by the war in Iran contributed to the rise in yields. (Giuseppe Cacace/AFP via Getty Images)
Peter C. Earle, senior director of research at the American Institute for Economic Research, told FOX Business that “higher long-term yields increase companies’ financing costs and put pressure on the prices of existing stocks and bonds.” They also affect retirement portfolios when it comes to hiring.”
Earle added that “people who buy Treasury bills or reinvest maturing securities can earn higher yields, which can make it easier to generate income without taking on corporate credit risk.”
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“But improving purchasing power depends on inflation and taxes. A Treasury bond purchased today may still lose its market value if yields rise further and the owner sells it before maturity.”
Sophia Compton of FOX Business contributed to this report.
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