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The Federal Reserve sets national interest rate policy. But the US central bank is not the only big player in this arena: Bond investors also have a big influence on consumer borrowing costs.
Most types of consumer loans – such as mortgages and auto loans – often have their interest rates specified 10 year US Treasury bonds. That means their prices go up when the 10-year Treasury yield rises, and vice versa.
Those bond yields have grown steadily over the past few months.
The 10-year Treasury yield was around 4.7% as of Thursday’s market close, the highest level since January 2025.
Rates on Thursday’s 30-year fixed-rate mortgage — about 6.6% — rose to their highest level since August 2025, according to weekly data posted by Freddie Mac. Those with 15-year loans rose to 6% this week, the highest rate since June 2025, Freddie Mac said.
Those price pressures are coming within some households, economists say.
Average gasoline prices rose $4 a gallon again this week amid renewed tensions over the Iran war, according to data from the Energy Information Administration.
The Trump administration also imposed a slew of new tariffs on several countries on Friday. These import taxes increase costs for consumers and businesses, according to economists.
Inflation across the U.S. economy has also been above policymakers’ targets for more than five years, and the fiscal stimulus provided by this spring’s highest tax return appears to have shrunk, economists said.
A rise in Treasury yields is “just another pull for homes when you’ve got affordability elsewhere,” said Thomas Ryan, North American economist at Capital Economics.
“And we don’t see much relief in terms of borrowing costs,” he said.
Why has the Treasury yield increased?
The Fed sets a benchmark interest rate known as the federal funds rate.
That benchmark has a direct impact on short-term interest rates, such as those on credit cards and other revolving loans, said Chad NeSmith, a certified financial planner and director of investments at Tobias Financial Advisors, based in Plantation, Florida.
But bond investors tend to have the most influence on the movement of the 10-year Treasury yield and other long-term bonds.
Specifically, investors’ expectations for future inflation and the path of the Fed’s interest rate policy guide bond yields up or down, experts said.
For example, if bond investors expect inflation to rise, they will seek higher yields on long-term Treasury bonds to offset the risk of inflation eroding their future returns, experts say.
“Investors are setting a realistic price for themselves, and that has a huge impact on consumers in that regard [rates] they can borrow,” said Ryan.
In this case, many factors include investors’ concerns about inflation, such as oil priceswhich jumped sharply in July as tensions in the Middle East escalated.
Continued oil prices could affect prices throughout the US economy, for things like airline tickets, transportation and goods, NeSmith said.
Capital Economics expects the Fed to raise interest rates three times this year, not in response to higher oil prices but more to “the broader perception that inflation looks hot,” Ryan said.
Home ownership is likely to have the greatest impact
Consumers will feel the impact of higher Treasury yields more on their ability to buy or sell a home, NeSmith said.
Mortgage rates are more than double what they were during the Covid-19 crisis, for example, and could go as high as 7%, experts say.
“It will increase the lock-in effect in the housing market, where they feel trapped,” NeSmith said.
Consumers who can’t get an affordable auto loan may hold off on buying a new car, for example, he said.
“It just slows down spending, because people have to borrow more,” NeSmith said.
