Why a 10-year bond at a 5% yield is a pretty big deal

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Kimberly Adams (1:01)

Why a 10-year bond at a 5% yield is a pretty big deal.

From Marketplace in New York, I'm Kimberly Adams. The yield or the interest rate on 10-year Treasury bonds has reached and crossed the critical threshold of 5%. We keep a close eye on the rates for the 10-year Treasury bond because it's tied to some major borrowing costs for consumers. Marketplace's Nancy Marshall-Genser has more on why yields are rising and how they could affect you.

Nancy Marshall-Gensler (1:31)

The 10-year Treasury yield hasn't been at 5% since 2023, according to Reuters, but it reached the 5% threshold yesterday. As traders worried about inflation, if they think inflation will flare up, they demand a higher yield or interest rate to hold longer term bonds. So, the return on their investment won't be eroded by future inflation. Right now, investors are worried that oil prices will spike as tensions rise in the Middle East. Now, the 10-year bond is worth watching because the rates on some consumer loans are pegged to it, including car loans and mortgages. When the 10-year moves up, those rates follow. A 30-year fixed-rate mortgage is now averaging 6.76%, according to Freddie Mac.

I'm Nancy Marshall Gensler for Marketplace.

Kimberly Adams (2:19)

The Federal Reserve's Rate Setting Committee opens its two-day meeting this morning. This is Fed Chairman Kevin Warsh's first meeting since delivering his debut speech in Jackson Hole, Wyoming. President Trump is calling on the Fed to cut rates, but markets are betting the opposite, that the Fed will raise rates to help with inflation. I asked Lauren Seidel Baker, an economist at ITR Economics at Crow, how rate hikes actually work to bring inflation down.

Lauren Seidel Baker (2:45)

Rate hikes are seen as a break pedal, as cooling down the economy.

The trade-off, though, is things like hiring could slow down. The other side of the Fed's dual mandate is the labor market. So they want to be sure that whatever they do with interest rates, they're not jeopardizing the labor side. Now, all of that said, a 25 basis point rate change, that isn't going to move mountains. So, it's more about the path of future interest rates, rather than if they move by those 25 basis points at tomorrow's meeting.

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Kimberly Adams (4:54)

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