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The Federal Reserve determines the nation’s interest rate policy. But the U.S. central bank is not the only major player in this space. Bond investors also have a significant impact on consumer borrowing costs.
Many types of consumer loans, such as mortgages and auto loans, often have fixed interest rates. 10 year US bond. In other words, when the 10-year Treasury yield rises, interest rates also rise, and vice versa.
Yields on these bonds have been rising steadily over the past few months.
The yield on the 10-year U.S. Treasury note was about 4.7% as of market close on Thursday, the highest level since January 2025.
The 30-year fixed mortgage rate, about 6.6%, rose to its highest level since August 2025 on Thursday, according to weekly data released by Freddie Mac. The number of people taking up 15-year fixed-rate mortgages rose to about 6% this week, the highest level since June 2025, according to Freddie Mac.
According to economists, these price pressures come together with pressure on household budgets.
Average gasoline prices remained above $4 a gallon this week as tensions from the Iran war flared again, according to Energy Information Administration data.
The Trump administration also imposed a slew of new tariffs on dozens of countries on Friday. Economists say these import taxes raise costs for consumers and businesses.
Inflation across the U.S. economy has also been higher than policymakers’ targets for more than five years, and economists say the fiscal cushion provided by this spring’s relatively large tax refunds appears to have waned.
Thomas Ryan, North American economist at Capital Economics, said rising U.S. bond yields are “just a drag on households when affordability is happening elsewhere.”
“We don’t see much relief on the borrowing cost side,” he said.
Why have government bond yields increased?
The Federal Reserve sets an interest rate benchmark known as the federal funds rate.
Chad Nessmith, a certified financial planner and investment director at Plantation, Florida-based Tobias Financial Advisors, said the benchmark has a direct impact on short-term interest rates, such as interest rates on credit cards and other variable-rate loans.
But bond investors tend to have far more influence over movements in yields on 10-year Treasuries and other long-term bonds.
More specifically, experts say bond yields are driven up and down by investors’ expectations of future inflation and the trajectory of the Federal Reserve’s interest rate policy.
For example, if bond investors expect inflation to rise, experts say they will demand higher yields on long-term Treasuries to compensate for the risk that inflation will hurt future returns.
“Investors are pricing their own reality, and that has huge ramifications for consumers in terms of the interest rates they can borrow,” Ryan said.
In this case, a number of factors are contributing to investors’ fears about inflation, including: crude oil priceIt soared in July amid rising tensions in the Middle East.
Nesmith said persistently high oil prices could spill over into prices across the U.S. economy, including airline tickets, transportation and goods.
Capital Economics expects the Fed to raise rates three times this year, not necessarily in response to high oil prices, but rather due to “the widespread view that inflation is high,” Ryan said.
Homeownership probably has the biggest impact
Nesmith said consumers will primarily feel the impact of rising U.S. Treasury yields when buying and selling homes.
Mortgage interest rates, for example, could exceed 7%, more than double what they were during the coronavirus pandemic, experts say.
“There’s going to be more of a lock-in effect where people feel trapped in the housing market,” Nesmith said.
For example, consumers who can’t find a car loan with an affordable interest rate may forego buying a new car, he said.
“It just slows down consumption because people have to borrow more,” Nesmith said.
