Individuals who require financing to purchase a home or a car must think about their budget and the cost, and they might also wish to monitor the Treasury market.
As politicians examine how much they may contribute to the government deficit with the Republicans’ enormous tax and spending measure currently being considered in the Senate, higher yields on Treasury securities are coming into sharper view.
The rates for the 10-year Treasury note BX:TMUBMUSD10Y and the 30-year bond BX:TMUBMUSD30Y have been at or around their highest levels since 2007, indicating that investors have been paying attention. Although stocks are still recovering from their April 8 lows, there is still a chance that higher bond yields and larger tariffs in 2025 could reduce corporate profits and have an adverse effect on the economy.
Given their connection to consumer borrowing rates, those looking for a mortgage or auto loan should also be aware of the effects of bond yields in the approximately $29 trillion Treasury market.
Tim Quinlan, a senior economist and managing director at Wells Fargo (WFC), stated, “The reason people ought to be paying attention is the cost for the lender is, broadly speaking, going up.” “It’s not a unique opinion that the rising national debt and rising budget deficits just contribute to the interest-rate rise.”
What impact do macroeconomic factors have on mortgage rates?
Lenders consider both the details and the overall picture when deciding on the interest rates they charge on mortgages, auto loans, and other forms of credit. According to Quinlan, lenders take into account prospective borrowers’ creditworthiness as well as market strategy. Additionally, they consider their cost of capital, which is where Treasurys are useful.
Yields in the Treasury market, especially for the 10-year note, are typically used by lenders as a basis for rates on a variety of consumer loans. The most obvious example is the 30-year fixed-rate mortgage.
According to Freddie Mac (FMCC), the 30-year rate on new mortgages is now averaging 6.89% per week, up from 6.76% at the beginning of the month. According to FactSet, the yield on the 10-year note increased from 4.2% on May 1 to 4.4% on Friday.
Since bond yields and prices fluctuate in opposite directions, a selloff raises the yield while lowering the price. Treasury yields hardly changed more than a few basis points every day for decades. However, because underlying benchmark rates are so volatile, significant upside swings since the election in November have made it more expensive for borrowers and more challenging for lenders to price new loans.
There is currently “a big selloff in the bond market,” according to Lawrence Gillum, LPL Financial’s chief fixed-income analyst. But he went on to say that “the debt and deficit spending is the primary reason.”
President Donald Trump’s 2017 tax cuts would be extended by the GOP megabill that was approved by a single vote in the House of Representatives last week. Additionally, it would include other tax benefits that Trump promised during his campaign in 2024, including as deductions for overtime and tip income.
The impartial Congressional Budget Office estimates that the House version of the tax measure would increase the debt by $3.8 trillion, even if the Senate is certain to make revisions. Over $36 trillion is already owed by the federal government.
According to Gillum, the government will have to issue more debt on top of what it is currently borrowing in order to pay for its spending with lower tax collection.
According to him, a default in which the government is unable to pay its debts is not the main concern in the bond market. Instead, it comes down to supply and demand: Higher yields and lower investment prices are typically the results of a greater supply of Treasury debt.
Moody’s downgraded the U.S. government’s credit rating from its top-tier classification when the tax measure passed the House. The credit rating agency pointed to persistent deficits and growing interest rates.
According to Katie Klingensmith, chief investment strategist at Edelman Financial Engines, the downgrading wasn’t particularly noteworthy. Over the years, Moody’s and other rating agencies have already downgraded their assessments of U.S. debt. However, it caused us to become very focused on fiscal policy. “It’s not getting better, even though it’s not new,” she remarked.
Officials in the Trump administration have a different perspective.
In a Wednesday opinion article, White House senior counselor for trade and manufacturing Peter Navarro suggested that budget scorekeepers might be underestimating the economic impact of the GOP bill and failing to account for a revenue influx from increased tariffs. “The current rise in yields reflects fear – not facts,” he stated.
The majority of the administration’s tariffs were revoked by the U.S. Court of International Trade on Wednesday, but a federal appeals court postponed the ruling’s impact while the appeal was pending, meaning the levies remained in place on Friday, at least temporarily.
For a number of years, interest rates have been high.
Interest rates had been rising for a number of years, long before the GOP’s “big beautiful bill” became a reality. In 2023, 30-year mortgage rates were close to 8% for homebuyers under President Joe Biden’s term, and savers poured their money into cash, certificates of deposit, and other fixed-income instruments that were finally yielding respectable returns.
Three years ago, the Federal Reserve started raising its short-term rate in an effort to combat inflation and curb consumer spending. In 2023–2024, the central bank finally raised its benchmark rate to a level that had not been seen in almost two decades. The central bank is awaiting the impact of new tariffs on inflation and the economy after lowering interest rates three times in the last quarter of 2024. In order to maintain more stringent financial conditions, the Fed has also been gradually shrinking its massive balance sheet.
The Federal Reserve may not be able to drop interest rates until 2026 due to the uncertainty surrounding tariffs and inflation, and the 30-year fixed-rate mortgage will find it difficult to decline significantly from its current levels in the absence of a U.S. recession, a BNP Paribas team stated on Wednesday.
Another benchmark that influences consumer lending rates is the federal-funds rate.
For instance, a lot of credit card companies base their annual percentage rates on the prime rate and then tack on a markup. Typically, the prime rate is three percentage points higher than the federal-funds rate.
According to Edelman’s Klingensmith, the two main narratives influencing rates and yields in the past were inflation and economic growth. In addition, there are trade policies, Treasury debt buyers and sellers, and fiscal health. “The kinds of headlines driving interest rates are much more complex and diverse,” she said.
In addition to rates, consumers also need to take underlying Treasury prices into account.
Car loan rates have some indication that they can follow the 5-year Treasury note BX:TMUBMUSD05Y, according to Vadim Verkhoglyad, head of research at dv01, a company owned by Fitch Solutions. At the beginning of the month, the 5-year note’s yield was 3.81%, but it is now 4%.
nevertheless, “the impact of more auto tariffs – that matters so much more in the cost of a car than anything that may happen in rates,” he stated.
There is a bright side for savers.
According to Gillum at LPL, there are several reasons why stocks typically decline when yields rise.
Among other things, it’s an indication that future borrowing costs for businesses may increase. According to him, it may also be seen as evidence that some investors find fixed-income investments more alluring than stocks.
For someone who want to acquire bonds and receive the coupon—a recurring interest payment—that is the bright side. “It’s a great atmosphere for saving…. That’s what we’ve been telling advisers and clients,” Gillum stated. “There’s a plethora of income opportunities out there without taking on a lot of risk.”
Fixed-income securities have been gaining luster, Klingensmith concurred. “Now holding bonds can pay you something,” she continued. However, she pointed out that it’s not a straightforward fix for everyone: A person’s current lower-rate bond portfolio may lose value if bond yields rise in the future.
An alternative perspective on the bond-yield volatility that is impacting loan rates and leaving some borrowers wondering when rates will decline is to examine the advantages for savers.
According to Klingensmith, there are strategies for people to deal with high rates. A high credit score is “all the more important,” she said, for those looking to buy a home or a car.
The volatility, however, “makes it really hard for you to make that long-term plan,” she said. That lack of certainty may discourage you from making investments and in yourself.
