10-Year Treasury Yield Hits Its Highest Level Since 2007: What It Means for Mortgages and Savings

A number most people never look at just reached a 19-year high, and it quietly shapes what you pay to borrow and what you earn on savings.

What happened

On Monday, Sept. 28, the yield on the 10-year U.S. Treasury note rose to about 5.25%, according to Yahoo Finance. That is the highest level since 2007. The 30-year Treasury yield climbed to about 5.57%, the highest since 2004, and the 2-year yield reached about 4.93%.

A Treasury yield is the interest rate the U.S. government pays when it borrows money by selling bonds. When investors demand a higher return to lend to the government, yields go up. Because Treasuries are seen as the safest place to park money, many other interest rates in the economy move in the same direction.

The climb did not happen in a single day. The 10-year yield first climbed above 5% in mid-September and has kept rising since.

Why yields are climbing

Market reports point to several reasons at once:

• The Federal Reserve is raising rates again. Earlier this month, the Fed raised its benchmark rate by a quarter of a percentage point, its first increase in about three years. Fed Chair Kevin Warsh has highlighted inflation risks, and Fed projections showed most officials expect at least one more increase.
• Energy prices are up. The war involving Iran has pushed oil prices higher, which feeds into inflation.
• The government is borrowing a lot. Large federal deficits mean the Treasury has to sell more bonds, and buyers may want higher yields to take them.
• Big spending on artificial intelligence. Companies are pouring money into data centers and chips, which adds to demand for borrowed money.

Strategists at Macquarie noted that yields are high partly because the economy is strong, but they also warned that yields rising quickly can shake up markets.

What this means for your wallet

Mortgages. The 30-year mortgage rate tends to follow the 10-year Treasury yield. Freddie Mac's most recent weekly survey, released Sept. 24, put the average 30-year fixed mortgage rate at 7.03%, up from 6.95% the week before and from 6.30% a year earlier. Since yields kept rising after that survey, mortgage rates could stay high in the near term. If you are shopping for a home, a higher rate means a bigger monthly payment for the same loan amount.

Savings and CDs. There is a bright side for savers. Higher rates can mean better returns on high-yield savings accounts and certificates of deposit (CDs), which are bank accounts that pay a fixed rate if you leave the money alone for a set time. Fortune reported that the top CD rate it tracked on Sept. 28 was 4.95% APY. APY, or annual percentage yield, is how much you earn in a year, including interest on your interest.

Credit cards and other loans. Credit card rates are tied more closely to the Fed's own rate than to Treasury yields. With the Fed raising rates, card balances could get more expensive to carry.

Retirement accounts. When yields rise, the prices of bonds people already own fall. If your 401(k) or IRA holds a bond fund, you may notice its value dip. Over time, though, newer bonds in the fund pay higher interest.

Things you could consider now

• If you plan to buy a home soon, you could compare offers from several lenders and ask how a rate lock works. A rate lock holds a quoted rate for a set number of days while your loan is processed.
• If you carry credit card debt, paying it down may save more money than almost anything else, since card interest often costs far more than savings accounts earn.
• If you have cash sitting in a basic checking account, you could compare rates on high-yield savings accounts and CDs.
• Watch this week's data. A key inflation report (PCE) is due Wednesday and the September jobs report is due Friday. Both could move rates again.