NEW YORK — The yield on the 10-year U.S. Treasury reached 5% Monday, crossing a closely watched threshold that could put additional upward pressure on mortgage rates and other borrowing costs for consumers, businesses and the federal government.
The benchmark yield has been climbing amid a broad global bond sell-off driven by concerns about energy prices, expectations for higher central bank interest rates, the war with Iran and growing government debt, CNN reported.
The news comes as the Fed’s Open Markets Committee kicks off two days of meetings today, with many expecting it will move to increase rates.
The 10-year yield briefly touched 5% in 2023 but otherwise has not traded at such levels since 2007. As CNN noted and credit unions are aware, the move is particularly significant because the 10-year Treasury serves as an important benchmark for borrowing costs throughout the economy.
Sharp Reversal Since Early in Year
The 10-year Treasury yield began the year at about 4.15% and fell below 4% in February before reversing course, according to CNN. Yields began climbing sharply following the start of the war with Iran, reaching 4.5% in May and 5% Monday.
The increase has continued despite efforts by Treasury Secretary Scott Bessent to calm concerns in the bond market, the analysis stated.
The sell-off extends beyond the United States. Government bond yields in several countries have reached multiyear or multidecade highs as investors reassess inflation, interest-rate and fiscal risks.
Bond prices and yields move in opposite directions, meaning falling Treasury prices push yields higher.
The U.S. Treasury market, valued at nearly $32 trillion, dominates the global government bond market and plays a central role in determining borrowing costs throughout the financial system, according to CNN.
Mortgage Rates Feeling Effects
For consumers, one of the most immediate consequences could be higher mortgage rates.
Mortgage rates tend to closely follow movements in the 10-year Treasury yield, although the relationship is not exact.
The average rate on a 30-year fixed mortgage increased to 6.76% last week and at one point touched 7% compared with 6.15% at the beginning of the year, as the CU Daily reported earlier.
Higher rates can significantly increase monthly payments for homebuyers and reduce purchasing power, adding another affordability challenge to a housing market already struggling with elevated prices.
Potential Pressure on Stocks
A sustained increase in Treasury yields also could create challenges for the stock market, the CNN analysis explained, noting higher yields can reduce the present value analysts assign to companies’ future earnings. At the same time, higher returns on government bonds can make relatively safe Treasury securities more attractive compared with riskier investments such as stocks.
The effect is not automatic, however.
CNN noted that the S&P 500 remains up more than 10% this year despite the steady increase in Treasury yields. Strong corporate earnings and economic growth can help stocks withstand higher interest rates.
Sharp increases in yields can be more disruptive.
CNN pointed to April 2025, when financial markets were shaken by President Donald Trump’s tariff policies. The 10-year Treasury yield jumped, the dollar weakened and stocks declined.
Is 5% a Breaking Point?
Investors are now watching whether 5% becomes a psychological or financial breaking point for markets, according to the report.
John Higgins, chief economic adviser for financial markets at Capital Economics, said some investors view a 5% 10-year Treasury yield as a level beyond which financial markets could experience serious stress.
Higgins said Capital Economics does not necessarily view 5% as a “magic” threshold but warned that still-higher Treasury yields could pose risks both to U.S. government finances and equities, according to CNN.
