The 3 Biggest Risks of Higher Yields

You may have read some headlines or even heard people talk about higher Treasury rates lately. It’s worth paying attention to. U.S. Treasuries, and global bonds in general, have been giving investors reason to worry lately.

So, what does this mean to the average consumer? How does this affect you?

The Importance of Treasury Yields

First, let’s talk about what this actually means. Treasury yields, the interest rates investors receive for holding U.S. debt, are arguably the single most important rate in the world. Think of the 10-year Treasury yield (currently 4.8% as I write this) as the bond equivalent to the S&P 500 stock index.  

Lenders use those yields to price their interest rates on everything from mortgages to car loans to corporate debt. That means that if Treasury rates rise, then it becomes more expensive for everyone else to take on debt. It slows down U.S. economic activity.

What we have been witnessing for a few years now is a rise in Treasury yields, with an acceleration to the upside over the past year.

There is good reason for this acceleration. Government deficits are out of control. Inflation remains high. Trade wars. Real wars. All of it means that government officials are doing a terrible job of running a balanced budget.

And it’s not just here in the U.S. Japan is a mess, the U.K. is a mess, Italy is a mess, France is a mess, etc. Most G-20 countries have slow growth combined with politicians who plan to borrow more so their governments can spend more. They’re basically kicking the can down the road and hoping future generations will handle it. It’s been the playbook politicians have been using for the past 20-30 years. This is leading to higher interest rates because the market is pricing in the reality that this strategy entails more risk. So they want to be compensated for that risk.

How Will This Affect Consumers

Here are the 3 biggest risks I see if Treasury yields continue to rise:

Housing fallout

Mortgage rates are closely tied to the 10-year Treasury. So if bonds continue to sell off (which drives up yields), the stagnant housing market will probably not see a resurgence any time soon.

We have seen housing prices remain elevated for a few years now, primarily due to limited inventory. I mean, a 2.75% mortgage rate is difficult to walk away from!

We did briefly see mortgage rates dip in February, which provided some relief and even optimism for those looking to buy a home. But that was short-lived after the U.S. and Israel bombed Iran. Oil spiked, which caused inflation to spike, which caused the 10-year yield to jump higher. The housing market’s very important spring selling season turned into a bust.

These higher bond yields also weigh on the rental market, making it more expensive for developers to build new units. This, in turn, pushes landlords to demand even higher rents.

More Expensive Cars

With higher Treasury rates come more expensive auto loans.

During the 2020 COVID-induced supply chain mess, car costs have become historically expensive. Bottlenecks, tariffs, etc. it all led to higher prices. Even maintenance and insurance costs have outpaced inflation since 2020.

Car loans are also closely tied to the 5-year Treasury yield, which reached its highest point in January 2025. When interest rates rise, buyers opt for longer loans to keep monthly payments reasonable.

The Risk to Stocks

The S&P 500 is near its all-time high, with its total return close to 13% for the year. Not bad, given all of the headwinds it has faced this year. In my opinion, it speaks to the strength of the U.S. economy, particularly the enthusiasm for artificial intelligence and IPOs. The SpaceX IPO earlier this year, which I warned you should be wary of, highlights the strong demand for U.S. growth companies.

But that doesn’t mean the stock market is infallible. Stock prices are high, which I have written about here. And the AI trade will not continue forever. Higher Treasury yields mean investors can look to bonds rather than stocks if they think equity returns are not attractive enough. After all, higher Treasury yields offer investors returns that may be lower-risk than those of stocks with lofty expectations. Is that actually true? Perhaps, perhaps not. But the reality is that rising rates have historically been a headwind to stocks.

To be sure, the current interest rate environment is not necessarily high. I think it is fair, all things considered. Keep in mind that the U.S. printed $7T during the COVID crisis. There is always a price to be paid, and inflation is that price.

Ryan A. Hughes

Ryan is the founder of Bull Oak, a financial advisor in San Diego. He’s been listed in InvestmentNews 40Under40 and his firm has been named one of the fastest-growing by Wealth Management Magazine.