Here’s what that means for you

The yield on the benchmark 10-year Treasury topped 5% again Monday, a key level that could impact mortgage rates, student debt, auto loans and more.

Last week, the 10-year yield crossed the 5% threshold for the first time in 16 years after Federal Reserve Chair Jerome Powell said “inflation is still too high,” raising expectations that another rate hike may not be completely off the table this year.

“That has real impacts on the economy, ultimately affecting every individual in the U.S.,” said Mark Hamrick, Bankrate.com’s senior economic analyst.

Stock futures fell on Monday as yields rose and investors assessed the prospect of higher-for-longer interest rates from the Fed.

The yield on the 10-year note is a barometer for mortgage rates and other types of loans.

“When the 10-year yield goes up, it will have a knock-on effect for almost everything,” according to Columbia Business School economics professor Brett House.

Even though many of these consumer loans are fixed, anyone taking out a new loan will likely pay more in interest, he said.

A bond’s yield is the total annual return investors get from bond payments. There are many factors driving the recent spike in Treasury yields, economists said.

For one, yields tend to rise and fall according to the Federal Reserve’s interest rate policy and investors’ inflation expectations.

In this case, the central bank has hiked its benchmark rate aggressively since early 2022 to tame historically high inflation, pushing up bond yields. Inflation has fallen significantly since then. However, Fed officials and recent strong U.S. economic data suggest interest rates will likely have to stay higher for a longer time than many expected to finish the job. Higher oil prices have also fed into inflation fears.

But interest rates are just part of the story.

Most of the recent jump in Treasury yields is due to a so-called “term premium,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.

Basically, investors are demanding a higher return to lend their money to the U.S. government — in this case, for 10 years. One reason: Investors seem skittish about rising U.S. government debt, Hunter said. Generally, investors demand a higher return if they perceive a greater risk of the government’s inability to pay back debt in the future.

The rapid rise in Treasury yields may “accelerate an already weakening economic picture that is masked by higher rates,” said Canaccord Genuity Group chief market strategist Tony Dwyer in a Monday note.

Most Americans’ largest liability is their home mortgage. Currently, the average 30-year fixed rate is up to 8%, according to Freddie Mac.

“For those who are planning to buy a home, this is really bad news,” said Eugenio Aleman, chief economist at Raymond James.

“Mortgage rates will probably continue to go up and that will push affordability farther away.”

There is also a correlation…