money·3 min read

What Bond Yield Fluctuations Can Mean for Your Wallet

Feb 26, 2021

The yield of the 10-year Treasury – a type of gov bond – jumped to the highest level in a year in late February.

The deets that matter for your wallet: Quick refresher: A yield is the expected reward you’ll eventually earn from buying a bond. And what happens with the Treasury note's yield – which impacts rates for mortgages and other loans – can help gauge the state of the economy.

Rising bond yields can indicate people are optimistic. Because when the economy's looking good, investors are less interested in the safety offered by Treasury bonds and more open to risk. So they sell their bonds – sending the bond price down and yield up.

On the other hand, falling bond yields could mean the economy's running out of steam. Because, in that case, investors are more likely to dump risky assets in favor of more security. Economists say low bond yields could be a sign a recession is around the corner.

Still with us?

What you can do about it: Bond yields might not be the sexiest topic. But understanding how they affect your wallet can help you keep more money in it. Here's what to do when yields rise.

  • Make a mortgage move. Where 10-year Treasury yields lead, mortgage rates often follow. If you've been thinking about taking out a new loan to buy a home or refinancing your current mortgage, consider if now is a good time in case rates jump higher.

  • Watch for inflation. Some think the recent rise in 10-year bond yields means inflation is coming. But Federal Reserve Chair Jerome Powell says he's not worried about it. Because, while spending might initially spike and push prices up as we come out of the pandemic, it won't be a lasting trend. TBD on who's right.

  • Be patient with stocks. Rising bonds yields are stressing out some company stocks. Especially ones that have been flying high lately (think: Tesla, Apple, and Alphabet (Google's parent co). Because a healthy economy could = better returns from investments that have struggled lately and stand to benefit from economic growth. That could lead to less interest in stocks that have performed well in a down-economy. If your personal investing strategy is focused on the long-term, don't worry about what happens in the short term with tech (or any other) stocks.

theSkimm: Where Treasury bond yields are heading is considered a forward-looking signal of the economy's health. Understanding what it means for your wallet can help you prep for wherever they go. 

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