10-year Treasury yields are falling. Want the good news first?
10-year Treasury yields are falling. Want the good news first?
Last month, Treasury Secretary Scott Bessent told reporters that the Donald Trump administration is interested in bringing down yields on 10-year Treasury bonds. As we reported at the time, that might be tough for the administration to do.
But as of Wednesday, yields on 10-year T-notes have fallen about half a percentage point from highs in mid-January.
“This is a good news/bad news package,” said Susan Wachter, a professor of real estate finance at the University of Pennsylvania’s Wharton School.
Ten-year Treasury bonds have a direct relationship to the cost of borrowing. What consumers pay for mortgages, auto loans or business loans are tied to those rates.
The good news is, falling bond yields can make it cheaper for households and businesses to borrow.
“I, unlike my family members, have a very high interest rate on my mortgage,” said Nicole Cervi, an economist with Wells Fargo.
Like many people who purchased homes over the past few years, Cervi’s mortgage rate is above 6%. Most people who purchased homes a few years earlier or refinanced while rates were low are hesitant to give up those mortgages, which has led to a slowdown in the housing market.
“They’re not going to move right now,” Cervi said.
Now that 10-year yields are falling, Wachter said more potential buyers might be able to get into the housing market. Lower borrowing costs could also make it easier for businesses to invest in new projects or factories.
“Of course, it does matter … what is causing the rate to decline,” she said. That’s where the bad news comes in.
“What appears to be causing the 10-year Treasury rate to decline is slower expectations on economic growth and perhaps increased risk of a recession,” Wachter said.
The Federal Reserve Bank of Atlanta recently projected a slowdown in U.S. gross domestic product growth in the first quarter of this year — the biggest contraction since pandemic lockdowns.
Meanwhile, consumer confidence has dropped, retail sales are shrinking, and U.S. tariff policy is shifting by the hour. Investors weigh all of these factors when buying and selling U.S. Treasury bonds.
“I think we’re likely to get a few months of soft data, both in terms of how the economy is growing, but also how the labor market is doing,” said Blerina Uruci, chief U.S. economist for T. Rowe Price.
That’s likely driving some investors to sell equities and buy bonds.
“I think the growth-scare narrative is partly driving the 10-year yields lower,” Uruci said. “Slower growth expectations mean that the Fed can cut, or might be forced to cut, interest rates down the road — I think that’s definitely part of the story.”
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