4 parts of everyday life where Americans will feel surging bond yields
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- Bond yields are surging towards 5%, impacting consumer finances and the economic outlook.
- Rising bond yields can be a double whammy for retirement accounts, negatively impacting stock and bond prices.
- Higher interest rates also increase the cost of homes, car loans, and credit card debt.
Bond yields are surging toward levels not seen in more than a year, driven by concerns that Donald Trump's wide-reaching tariff plan will spur a rebound in inflation.
That, combined with solid economic data that doesn't look likely to necessitate further aggressive interest-rate cuts, has yields on a sharp upward ascent that threatens to pinch everyday Americans.
While some on Wall Street have started sounding the alarm on what soaring bond yields could mean for stocks, the potential headwinds go well beyond that.
Detailed below are four areas consumers should be watching for signs of stress following the 10-year US Treasury yield's jump of more than 100 basis points since mid-September, and as the measure approaches the psychologically important 5% threshold.
Retirement accounts
Consumer retirement accounts are facing a double whammy as interest rates rise, similar to what happened during the bear equity market of 2022.
Higher interest rates coincide with lower bond prices for those with fixed-income holdings, often leading to negative returns.
In 2022, when the 10-year US Treasury yield more than doubled to about 4%, the Bloomberg Aggregate Bond Index shed 13%. Higher bond yields also put pressure on stock prices, with the S&P 500 declining nearly 20%.
Since the 10-year US Treasury yield started rising in September, the Bloomberg Aggregate Bond Index has declined nearly 6%, once again hurting consumer retirement portfolios, especially those who are closer to retirement or already in retirement, as they typically hold a higher allocation to fixed-income securities.
Meanwhile, the S&P 500 is down about 4% since mid-December, when investor concerns about surging bond yields began to surface.
Mortgage rates
Perhaps the most visible impact of rising bond yields is the spike in mortgage rates.
They were supposed to go down after the Federal Reserve started cutting interest rates in September, but they've instead surged.
That's hiked the cost of borrowing for potential homebuyers and decreased affordability overall.
According to Freddie Mac data, the average 30-year fixed mortgage rate has surged nearly 1 percentage point to about 7% since September.
"Mortgage rates have gone up pretty dramatically," Greg McBride, chief financial analyst at BankRate, told Business Insider. He added that much of the pain stemming from higher bond yields is concentrated in fixed mortgage rates.
For consumers looking to buy a home at the US median sales price of about $420,000, the near-1% increase on a 30-year fixed mortgage equates to a more than $200 increase in monthly mortgage payments, or about $2,500 higher yearly.
Rising interest rates also immediately impact homeowners with adjustable-rate mortgages, as their monthly payments are reset to reflect the higher interest rates.
Even renters may not be immune, as landlords facing higher financing costs might pass those expenses onto their tenants during their next lease signing.
Auto loan rates
McBride notes that auto loan interest rates are more closely tied to movements in the 5-year US Treasury yield, which have tracked the 10-year note roughly 100 basis points higher since September.
According to St. Louis Federal Reserve data, since interest rates started to surge in 2022, consumer auto loan rates for a 5-year loan have nearly doubled to 8.4% as of August.
Consumers can lower their monthly auto loan payment by choosing a longer-term period, like the increasingly popular six-year loan. However, that doesn't lessen the amount of interest paid on the car over the loan's lifetime; it increases it.
Credit card debt
Higher bond yields can also drive up interest rates on consumer debt, like personal loans and credit cards.
For credit cards, because the debt is unsecured, it is variable and closely tied to movements in the prime rate, which is based off of the federal funds rate.
"Though the Fed lowered interest rates several times in 2024, we saw average credit card interest rates hit record highs," Sara Rathner, a credit card expert at NerdWallet, told Business Insider. "Simply put, that makes it more expensive to be in credit card debt."
The average credit card interest rate has soared from about 15% at the start of 2022 to nearly 22% today, according to data from the St. Louis Federal Reserve.
That seven-percentage-point increase will cost consumers a lot in interest costs if they hold a balance on their credit card month-to-month and don't pay it off immediately.
A recent survey conducted by NerdWallet found that US households with revolving credit card balances are carrying about $10,000 in debt.
"If you make only the minimum payment, it could take you more than two decades to pay that off, and with interest, you'll spend triple the original amount you charged," Rathner said.