What a 5.35 Percent 10 Year Treasury Yield Means for Your Wallet
NEW YORK — The interest rate on the 10 year Treasury note climbed to 5.35 percent in early October, the highest level since 2002, according to Reuters. It is the kind of milestone that moves bond traders first, then quietly reaches into mortgages, car loans and savings accounts.
Think of the 10 year yield as the economy’s benchmark borrowing cost. When investors demand a higher return to lend the federal government money for a decade, lenders tend to charge everyone else more too. The yield rose as investors sold off bonds amid worries about inflation and the nation’s growing debt.
The most visible effect is on mortgages. Thirty year mortgage rates generally move with the 10 year Treasury yield, because both reflect long term lending. When the yield climbs, mortgage rates tend to follow, which means higher monthly payments for homebuyers and fewer reasons for current homeowners to refinance. Freddie Mac reported the average 30-year fixed rate at 7.28 percent in the week ending Oct. 1.
Student loans feel it too. Federal student loan rates for new borrowers are set each year based in part on the 10 year Treasury yield. Private student loans and refinancing deals also track broader long term rates, so a rising benchmark can mean heavier borrowing costs for college.
Credit cards and auto loans respond more to the Federal Reserve’s short term benchmark rate than to the 10 year yield. The Fed raised its benchmark last month for the first time in three years, according to Investopedia, and officials have hinted more increases may come. Cardholders carrying a balance will feel that move through higher annual percentage rates.
Businesses feel the pinch as well. Companies that borrow to expand, build or hire face higher costs, and some may slow down investment. That can cool the broader economy over time, which is exactly why economists watch the 10 year yield as a warning light.
There is one bright spot. Savers benefit when rates rise. Savings accounts, certificates of deposit and money market funds tend to pay more when benchmark yields climb, so cash parked in the bank earns a better return than it did during the low rate years.
The tradeoff is the larger picture. High long term rates make it more expensive for the government itself to borrow, adding to the cost of servicing the national debt. For ordinary households, the message is straightforward. Borrowing is getting more expensive, and saving is finally paying again.