If you have been waiting for mortgage rates to drop, Tuesday's bond market probably was not what you wanted to see.
The 30-year Treasury yield/) briefly climbed past 5.33% before settling at 5.305%. That peak was the highest level for long-term government borrowing costs in 19 years. That is a direct signal that investors are getting nervous about inflation and the government's spending habits.
The 30-year Treasury is the loan the U.S. government takes out when it needs money for decades at a time. When its yield, or the interest rate the government pays, goes up, it ripples through the economy. Mortgages, business loans, and other long-term borrowing costs tend to follow.
While the 30-year was making headlines, the 10-year Treasury yield actually slipped a bit to 4.72%. That is the rate that most directly influences what you pay on a home loan or a car loan. The 2-year yield, which tracks what investors think the Federal Reserve will do with short-term rates, dipped to 4.175%.
The math on the government's finances is getting harder to ignore.
Recent inflation readings for June and July showed overall price increases were low, but the annual rate is still above the central bank's 2% target.
It is not just a U.S. problem. Long-term bond yields are rising around the world. Japan's 10-year yield hit a 30-year high.
Germany's 30-year yield reached its highest level since 2011. France's 30-year yield hit a post-2008 high.
Geopolitics are adding fuel to the fire. The 60-day U.S.-Iran peace deal deadline expired Monday, and Iran has ruled out an extension. Deutsche Bank's Jim Rid said, "investors priced in a more extended closure of the Strait of Hormuz due to a lack of progress on a U.S.-Iran deal."
On a positive note, import prices dropped 0.4% in July, defying expectations. Economists had expected a 0.1% gain.
Higher long-term yields mean borrowing gets more expensive. If you are shopping for a mortgage or planning to refinance, the 30-year Treasury move is not your friend. Lenders use these yields as a baseline for setting the rates they offer you.
But there is a flip side. If you are saving for retirement or holding bonds in your portfolio, higher yields mean better returns on new bond purchases. Money market funds and short-term bonds are paying more than they have in years.
For most people, the takeaway is to keep an eye on the 10-year yield. It is the number that shows up in your monthly mortgage payment, your car loan, and your credit card rates.
